If you are an expat working in China, you may wonder how to pay your income tax and what are the tax rates and policies that apply to you. In this article, we will provide you with a complete guide on income tax in China for expats in 2023, covering the following topics:
- Who is liable to pay income tax in China?
- What are the sources of income subject to income tax in China?
- What are the tax rates and brackets for income tax in China?
- What are the preferential tax policies for expats in China?
- How to file and pay income tax in China?
- How to avoid double taxation in China?
- How to file income tax returns in China?
We hope this article will help you understand your tax obligations and benefits as an expat in China and make your life and work easier.
Who is liable to pay income tax in China?
According to the Individual Income Tax Law of the People’s Republic of China, individuals who have a domicile in China, or who do not have a domicile but have resided in China for 183 days or more in a tax year, are considered as resident taxpayers. Resident taxpayers are subject to income tax on their worldwide income, regardless of where the source of income is located.
Individuals who do not have a domicile and do not reside in China, or who do not have a domicile but reside in China for less than 183 days in a tax year, are considered as non-resident taxpayers. Non-resident taxpayers are subject to income tax only on their income derived from sources within China.
A domicile refers to the place where an individual habitually resides due to household registration, family ties, or economic interests. A tax year refers to the calendar year from January 1 to December 31.
Expats working in China are generally regarded as non-resident taxpayers for the first five years of their stay, unless they have a domicile in China. After residing in China for more than five consecutive years, they will be regarded as resident taxpayers, unless they leave China for more than 30 days in a single trip or more than 90 days in multiple trips within a tax year.
What are the sources of income subject to income tax in China?
The Individual Income Tax Law of the People’s Republic of China classifies income into two categories: comprehensive income and specific income. Comprehensive income includes wages and salaries, remuneration for personal services, author’s remuneration, and royalties. Specific income includes business operation income, interest, dividends and bonuses, rental income, capital gains, contingent income, and other income stipulated by the State Council.
Expats working in China are subject to income tax on their comprehensive income derived from sources within or outside China, and on their specific income derived from sources within China. The following table summarizes the sources of income subject to income tax for expats in China:
| Category | Source | Taxable |
|---|---|---|
| Comprehensive Income | Wages and salaries paid by Chinese employers | Yes |
| Wages and salaries paid by foreign employers for work performed in China | Yes | |
| Wages and salaries paid by foreign employers for work performed outside China | Yes (for resident taxpayers) / No (for non-resident taxpayers) | |
| Remuneration for personal services provided in or outside China | Yes | |
| Author’s remuneration received from Chinese or foreign publishers or organizations | Yes | |
| Royalties received from Chinese or foreign individuals or organizations | Yes | |
| Specific Income | Business operation income derived from production or business activities conducted in or outside China | Yes (for resident taxpayers) / No (for non-resident taxpayers) |
| Interest received from deposits or loans made to Chinese or foreign individuals or organizations | Yes (for resident taxpayers) / No (for non-resident taxpayers) | |
| Dividends and bonuses received from Chinese or foreign companies or organizations | Yes (for resident taxpayers) / No (for non-resident taxpayers) | |
| Rental income received from leasing property to Chinese or foreign individuals or organizations | Yes (for resident taxpayers) / No (for non-resident taxpayers) | |
| Capital gains received from transferring property or equity in China or abroad | Yes (for resident taxpayers) / No (for non-resident taxpayers) | |
| Contingent income received from lottery winnings, awards, inheritance, or gifts in China or abroad | Yes (for resident taxpayers) / No (for non-resident taxpayers) | |
| Other income stipulated by the State Council | Yes |
What are the tax rates and brackets for income tax in China?
The Individual Income Tax Law of the People’s Republic of China adopts different tax rates and brackets for comprehensive income and specific income. For comprehensive income, progressive tax rates ranging from 3% to 45% apply, with a monthly deduction of 5,000 yuan for resident taxpayers and a proportional deduction for non-resident taxpayers. The following table shows the tax rates and brackets for comprehensive income:
| Monthly Taxable Income (yuan) | Annual Taxable Income (yuan) | Tax Rate (%) | Quick Deduction (yuan) |
|---|---|---|---|
| Not more than 3,000 | Not more than 36,000 | 3 | 0 |
| More than 3,000 to 12,000 | More than 36,000 to 144,000 | 10 | 210 |
| More than 12,000 to 25,000 | More than 144,000 to 300,000 | 20 | 1,410 |
| More than 25,000 to 35,000 | More than 300,000 to 420,000 | 25 | 2,660 |
| More than 35,000 to 55,000 | More than 420,000 to 660,000 | 30 | 4,410 |
| More than 55,000 to 80,000 | More than 660,000 to 960,000 | 35 | 7,160 |
| More than 80,000 | More than 960,000 | 45 | 15,160 |
For specific income, flat tax rates ranging from 5% to 20% apply, with different deductions depending on the type of income.
What are the preferential tax policies for expats in China?
China has introduced some preferential tax policies for expats working in China to attract and retain foreign talents. These policies include:
- Tax exemption for foreigners’ fringe benefits. Foreigners working in China can enjoy tax exemption for additional perks offered by their employers, such as subsidies on rent, language training, children’s education, home leave travel, laundry and meal expenses. This policy was originally set to expire in January 2022, but has been extended to December 31, 2023 by the Ministry of Finance and the State Taxation Administration.
- Tax deduction for foreigners’ social security contributions. Foreigners working in China can deduct their social security contributions paid in China from their taxable income, if they participate in China’s social security system or a bilateral or multilateral social security agreement signed by China and their home country.
- Tax credit for foreigners’ charitable donations. Foreigners working in China can claim tax credit for their charitable donations made to public welfare organizations or government agencies in China, up to 30% of their annual taxable income.
In addition to these policies, foreigners working in China can also enjoy some general tax benefits that apply to all taxpayers, such as special additional deductions for expenses on children’s education, continuing education, health care, housing loan interest or rent, elderly care and supporting the disabled.
For example, if an expat earns a monthly salary of 30,000 yuan from a Chinese employer, and receives a monthly rent subsidy of 5,000 yuan from the employer, he or she can enjoy tax exemption for the rent subsidy and only pay income tax on the salary. Moreover, if the expat pays 2,000 yuan per month for social security contributions, 3,000 yuan per month for children’s education, and 1,000 yuan per month for health care, he or she can deduct these expenses from the taxable income and reduce the tax burden.
How to file and pay income tax in China?
The income tax filing and payment process in China varies depending on the type of income and the withholding agent. Generally speaking, there are two methods: withholding at source and self-declaration.
Withholding at source means that the payer of the income, such as the employer, the bank, or the property buyer, will withhold and pay the income tax on behalf of the taxpayer, and issue a tax payment certificate to the taxpayer. This method applies to wages and salaries, interest, dividends and bonuses, rental income, capital gains, and contingent income. The withholding agent is responsible for filing and paying the income tax to the tax authority within 15 days of the following month when the income is paid.
Self-declaration means that the taxpayer is responsible for filing and paying the income tax by himself or herself. This method applies to business operation income, remuneration for personal services, author’s remuneration, royalties, and other income stipulated by the State Council. The taxpayer is required to file and pay the income tax to the tax authority within 15 days of the following quarter when the income is received.
For example, if an expat receives a monthly salary of 30,000 yuan from a Chinese employer, the employer will withhold and pay the income tax on behalf of the expat and issue a tax payment certificate to the expat. The employer will file and pay the income tax to the tax authority within 15 days of the following month when the salary is paid. If an expat receives a royalty of 50,000 yuan from a Chinese publisher in March 2023, the expat will need to file and pay the income tax by himself or herself. The expat will file and pay the income tax to the tax authority within 15 days of June 2023.
How to avoid double taxation in China?
Double taxation refers to the situation where an individual pays income tax on the same income in two or more countries. This may happen when an expat works in China and earns income from sources outside China, or when an expat leaves China and earns income from sources within China. To avoid double taxation, China has signed bilateral or multilateral tax treaties or agreements with more than 100 countries or regions, which provide relief measures such as exemption, credit, or reduction of tax for taxpayers who are residents of both contracting parties.
To claim the benefits of a tax treaty or agreement, an expat working in China should obtain a certificate of residence from his or her home country’s tax authority and submit it to the Chinese tax authority along with other relevant documents. The Chinese tax authority will then determine whether the expat is eligible for any relief measures according to the provisions of the treaty or agreement.
For example, if an expat from Germany works in China and receives interest from a German bank account, he or she may be subject to income tax in both China and Germany. However, according to the tax treaty between China and Germany, interest derived by a resident of one contracting state from sources within the other contracting state may be taxed in that other state at a rate not exceeding 10%. Therefore, if the expat obtains a certificate of residence from Germany and submits it to China, he or she can enjoy a reduced tax rate of 10% on the interest income in China.
How to file income tax returns in China?
As mentioned earlier, expats who work in China usually pay income tax through withholding by their employers. However, in some cases, expats may need to file income tax returns and pay additional tax or claim a refund by themselves. These cases include:
- Expats who have non-withheld income that is not subject to withholding by their employers or other withholding agents;
- Expats who have both withheld and non-withheld income and their annual taxable income exceeds 120,000 yuan;
- Expats who have more than one employer or withholding agent in China;
- Expats who claim special additional deductions or other deductions that are not withheld by their employers or withholding agents;
- Expats who claim tax treaty benefits or other preferential tax policies;
- Expats who leave China permanently or temporarily;
- Expats who are required by the tax authorities to file income tax returns.
To file income tax returns in China, expats need to fill out the relevant forms and submit them to the tax authorities along with the supporting documents. Expats can file income tax returns online or offline. Online filing is available through the website or app of the State Administration of Taxation of China. Offline filing is available at the local tax service halls or offices.
There are two types of income tax returns in China: monthly returns and annual returns. Monthly returns are for expats who have non-withheld income that is not subject to withholding by their employers or other withholding agents. Expats need to file monthly returns within 15 days after receiving such income. Annual returns are for expats who have both withheld and non-withheld income and their annual taxable income exceeds 120,000 yuan; or expats who claim special additional deductions or other deductions that are not withheld by their employers or withholding agents; or expats who claim tax treaty benefits or other preferential tax policies; or expats who leave China permanently or temporarily; or expats who are required by the tax authorities to file annual returns. Expats need to file annual returns between March 1 and June 30 of the following year.
Conclusion
This article has given you a complete guide on how to pay income tax in China for expats in 2023. You have learned who needs to pay, what income is taxable, what exemptions are available, what the current rates are, how to calculate your taxable income and tax payable, and how to file income tax returns in China.
However, this article is only for general information and reference purposes. It does not constitute legal or professional advice. The rules and regulations on income tax in China may change over time and may vary depending on your location , nationality, occupation, and situation. Therefore, you should always consult with your employer, a tax professional, or the relevant authorities before you make any decisions or take any actions.
Frequently Asked Questions
You can use this formula to calculate your taxable income in China:
Taxable Income = Gross Income – Deduction – Special Additional Deduction – Other Deduction – Tax Exemption
Gross Income refers to your total income before any deduction or exemption. Deduction refers to the amount that you can deduct from your gross income according to your category of income. For example, for wages and salaries, you can deduct 5,000 yuan per month (or a proportional amount for non-resident taxpayers). Special Additional Deduction refers to the amount that you can deduct from your gross income for expenses on children’s education, continuing education, health care, housing loan interest or rent, elderly care and supporting the disabled. Other Deduction refers to the amount that you can deduct from your gross income for social security contributions or charitable donations. Tax Exemption refers to the amount that you can exclude from your gross income due to preferential tax policies, such as fringe benefits or foreign experts’ wages.
You can check your tax payment status and history in China by logging into the online tax service platform of the State Taxation Administration (https://etax.chinatax.gov.cn/). You will need to register an account with your passport number and mobile phone number, and verify your identity with a facial recognition system. Once you log in, you can view your tax payment records, download tax payment certificates, apply for tax refunds, and manage your tax information.
To claim tax benefits under a tax treaty or agreement between China and your home country, you need to obtain a certificate of residence from your home country’s tax authority, and submit it to the Chinese tax authority along with other relevant documents. The Chinese tax authority will then determine whether you are eligible for any relief measures according to the provisions of the treaty or agreement. You can find more information about the tax treaties or agreements that China has signed with other countries or regions on the website of the State Taxation Administration (http://www.chinatax.gov.cn/eng/n2367731/index.html).
If you fail to file or pay your income tax on time in China, you may face penalties such as surcharges, fines, or even criminal charges. The penalties vary depending on the type and severity of the violation. Generally speaking, you will be charged a surcharge of 0.05% per day on the overdue amount from the date of default until the date of payment. You may also be fined between 50% and 500% of the unpaid or underpaid amount if you evade or reduce your tax liability by fraudulent means. In serious cases, you may be subject to criminal prosecution and imprisonment.
If you need professional help with your income tax matters in China, you can consult a qualified tax agent or accountant who is familiar with the Chinese tax system and regulations. You can find a list of registered tax agents on the website of the State Taxation Administration (http://www.chinatax.gov.cn/eng/n2367733/index.html). You can also contact the local tax bureau or hotline (12366) for general inquiries or assistance.
Sources:
- China Expat Society | Chinese Income Tax – About the IIT
- ExpatDen | Personal Income Tax for Foreigners in China (2022)
- South China Morning Post | China’s expat tax system: Who Pays and How Does it Work?
- Greenback Tax Services | Expat Taxes in China: A Guide for Americans Living Abroad
- China Expat Society | Income Taxes for Expats in China Explained
