Foreigners working in China are subject to obligations but also rights when it comes to dealing with fiscal proceedings. As a foreign worker in China, or as a manager of a company seeking to hire non-Chinese employees, you might be interested in knowing the specificities of individual tax, social insurance and other administrative processes.
Individual Income Tax
The Individual Income Tax must be paid by Chinese individuals (who are considered to be domiciled in China) and Foreign individuals (who are not considered to be domiciled in China). Any individual living and working in China is supposed to pay the IIT based on the income he received within China, and even outside the country in case he has been working in China for more than 5 years.
The IIT calculus is based on the net salary including bonuses, allowances, stock options, year-end salary increase, labor, bonuses, subsidies added to other income such as interest, dividends, lease and transfer of property or royalties among others.
Foreigners benefit from a wide range of nontaxable items that decrease their IIT. Among them, housing expenses, relocation expenses, home return flight ticket and language training expenses.
Employers have until the 15th of each month to file and pay the monthly tax payment while employees who resided in China for the complete previous year must file the annual IIT return.
Read our article on IIT for Expatriates in China to get more information.
You can also use S.J. Grand’s Individual Income Tax Calculator in order to get an up-to-date forecast of your taxes.
China’s social security makes the employers and employees contribute to funds dedicated to finance five insurances: pensions, unemployment, medical, maternity and work related injury.
In the case of foreigners, rules vary drastically depending on the city of work. In Beijing for instance, foreigners are required to contribute to the social security system like any Chinese employee. In the meantime, Shanghai doesn’t make its foreign workers contribute to the five types of social insurances. Exemptions also exist thanks to bilateral agreements signed between China and countries such as Germany and Canada.
Foreign employees in China also contribute to the housing fund that allows them to withdraw money to buy or rent property and even build or renovate a house or apartment.
Before leaving China, a foreigner has the right to get back the employee-paid pension accumulated during the time worked in China. If the foreigner has worked and contributed to the pension fund for 15 years or more, he can start receiving a monthly retirement income.
In a changing legal and fiscal environment, managers and foreign employees must get thorough and up-to-date information on how to deal with their tax and social security payments. They must seek the services of a tax expert, before, during and at the end of their time in China.
S.J. Grand provides essential advices throughout your residence in China. Contact us if you have any inquiries.