Individual income tax on foreign nationals


Individual income tax in China is levied on wages , salaries and other income of foreign nationals, depending on the length of their residence in China and the source of the income.

The Chinese tax year is from 1 January to 31 December. Individual income tax returns are required to be filed and the corresponding taxes paid on a monthly basis.

A foreign national should pay individual income tax on income derived from sources within the territory of China. The income chargeable to individual income tax includes the following categories:

  • wages and salaries;

  • production or business income derived from private industrial or commercial enterprise;

  • income from subcontract operations;

  • royalties;

  • interest, dividends and bonuses from investments;

  • property rentals;

  • income from transfer of property;

  • incidental income;

  • other income specified as taxable by the Ministry of Finance.

Income taxes of foreign nationals and Chinese citizens are governed by one single income tax regime .

Foreign nationals who do not have PRC domicile are generally subject to PRC income tax only on those categories of income that are deemed to be China- sourced, unless the individual resides in China for over five years . For this purpose, residing for one year is defined as living inside China for 365 days. Leaving China for fewer than 30 days at a time or cumulatively fewer than 90 days in a taxable year shall not be deemed as absence from China for the purpose of determining whether a person has resided in China for one year.

Foreign nationals will be exempted from tax if they reside in China for fewer than 90 days cumulatively within a calendar year and their remuneration is borne by a foreign employer that does not have a permanent establishment in China. This 90-day period is extended to 183 days if the individual is a tax resident of a country which has signed a tax treaty with China.

Monthly income from wages and salaries is taxed according to a progressive nine-scale rate, ranging from 5 per cent to 45 per cent. There is a set allowable deduction on income from wages and salaries of 800 renminbi per month. Due to cost of living allowance and foreign exchange adjustments, foreign nationals are entitled to an additional monthly deduction of 3,200 renminbi. The monthly deduction amount for Chinese citizens varies according to location and may be adjusted annually.

A taxpayer who has paid foreign income taxes on income from sources outside China may apply for a tax credit against Chinese taxes provided that relevant supporting documentation is submitted. If an income tax treaty and domestic tax rules are both applicable to a transaction, the income tax treaty provision will override the domestic tax rules where the income tax treaty confers more favourable treatment.

If an individual is treated as resident of another country by the tax authorities in that country, he may qualify for a measure of relief or exemption from Chinese tax under the taxation agreement between that country and China. Most current agreements prescribe various tests to determine in which of the two countries an individual is resident for tax purposes. Most current agreements contain clauses that exempt a resident of one country from tax on employment income outside China and on employment income in China if such resident is present in China for fewer than 183 days in the tax year.




Doing Business with China
Doing Business with China
ISBN: 1905050089
EAN: 2147483647
Year: 2003
Pages: 648
Authors: Lord Brittan

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