Are you working and living in China? Have you ever thought about your tax duties? If you earn income, you are most likely subjected to individual income tax in China. Navigating the taxation system in the P.R.C. can be quite difficult, especially if you are not a tax expert. Plus, as each person’s tax situation is unique, seeking professional advice is always recommended. You do not want to miss a deadline, or to pay a wrong sum.
With this post, S.J. Grand provides you with an overview of the Individual Income Tax in China focusing on how to file it after 2017’ tax return reform. Also, to make sure you get an idea of your personal payable tax, we recommend to try our Individual Income Tax Calculator out.
According to the taxation system in China, Chinese citizens are considered to be domiciled in China as they have economic and personal ties in the country. Therefore, they must always include their worldwide income in the tax filing.
For foreigners (citizens from Hong Kong, Taiwan, and Macau are also regarded as foreigners) considerations vary according to three different aspects:
If you are staying in China for less than 183 days in a calendar year, you will not be taxed in the P.R.C. (but you will in your home country). In the case your home country does not hold a double taxation agreement with China, the period is reduced to 90 days.
Staying in China for more than 183 days (or 90 days, as per the above) makes you a China tax-resident. You are subjected to Chinese taxation, but Chinese Tax Authorities will most likely not consider you as domiciled (if the center of your economic and personal life is still not China) and you will not be liable for worldwide income taxation in China.
If the period of your stay exceeds 5 consecutive years, you become fully taxable for your worldwide income in China and you must include it in the annual income filing.
Read our article about China’s 5-Year Tax Rule to understand how to legally escape taxation of your worldwide income.
Table developer: S.J. Grand
China’s Individual Income Tax Law recognizes 11 categories of income sourced in China. Specifically, these include:
These categories should be included in the Individual Income Tax Self Reporting.
The taxation system in China provides that the employer directly does the Income Tax Reporting on a monthly basis. The employer shall withhold the sum from monthly salaries. In addition to this, the employee must complete the annual tax reporting by him/herself. As it is a fairly complicated procedure, demanding professional help may be the best solution.
On November 8th, 2006, the State Administration of Taxation (SAT) issued the «Trial Individual Income Tax Self Reporting Regulation». According to the regulation, a natural person must submit the annual tax return when meeting one of the 4 following situations:
The annual tax return must be reported in addition to the monthly tax declaration. As China follows the calendar year, the return date will be March 31st of the following year. For 2017, the deadline is March 31st, 2018.
Since 2017, significant changes have been applied to the individual income tax return procedure (also called IIT 120K return procedure). The regulatory environment in China is constantly changing: being up-to-date can be stressful for expats.
Previously, the tax bureau only accepted paper filing via onsite declaration.
Now, the tax bureau accepts the annual individual income tax return via online declaration. Hence, the Chinese tax officer will not accept any paper filing for the annual return, unless an acceptable explanation is provided.
To ease the new procedure, employees can use three systems to directly declare the annual income tax online:
As the Tax Bureau only provides Chinese interface, foreign employees may face some difficulties at first.
Source: Shanghai Tax Bureau Wechat Official Account
For Chinese citizens (and for foreigners who own a verified Alipay/Wechat account and read the Chinese language) the new procedure is fast and easy, as they “just” need to enter their account. But, for non-Chinese-speaking employees the procedure could get complicated and time-consuming:
Tax consultants can help you not only to carry out the procedure, but also to evaluate your specific tax situation. There are indeed more conditions that can modify your liability in China (i.e. your position in a company, double taxation agreements, non-taxable benefits, …).
You don’t want to run out of money because of a wrong tax estimation, or because you missed the tax declaration deadline. China can apply severe fines to dodgers.