Are social insurance premiums taxable?
Both tax residents and non-residents in China are subject to taxable income. However, based on the new IIT law, a non-resident is only taxed on his or her income earned in China whereas he or she has lived in China for 183 days or less within a tax year. On the other hand, a resident individual is taxed on both his or her China-sourced and overseas income.
On the China-sourced taxable income, an employee’s social insurance contribution along with special itemized deductions items are deducted before the calculation of the IIT. Furthermore, the total insurance amount is deducted before the total net payment given to the employee.
Find out more about foreign workers allowances here: Expatriates in China – Tax Updates on Allowances
Sample Calculation (Shanghai-based):
A gross salary of RMB 25,000 with a total net pay of RMB 20,350.55.
- Total Taxable Income = [Gross Salary – Monthly Fixed Deduction] – [Total Deductions (Social Insurance+ Special Deductions)]
RMB 11,289.22 = [RMB 25,000 – RMB 5,000] – [RMB 8,710.78 (RMB 4,310.78 + RMB 4,400)]
- Deductible Tax Amount = Total Taxable Income x Tax Rate
RMB 338.68 = RMB 11,289.22 x 0.03 (3%)
- Total Net Pay = Gross Salary – [(Deductible Amount + Social Insurance)]
RMB 20,350.55 = RMB 25,000 – [(RMB 338.68 + RMB 4,310.78)]
*Special deductions include children’s education (RMB 1,000), continuing education (RMB 400), housing loan (RMB 1,000), and eldercare cost (RMB 2,000).
Find more information here about How to Qualify for a Tax Exemption