Travel Reference
In-Depth Information
that you've paid the same amount or more in tax to do it. Those liable for paying tax include
those: 1) with an annual income of RMB120,000 or more; 2) receiving a salary and remu-
neration from two or more employers in China; 3) generating income abroad; 4) generating
taxable income without a withholding agent; 5) who fit other requirements as specified by
the State Council. Failure to pay tax can attract penalties.
Tax in China is calculated on a progressive scale, and the type of company you work
for as well as your position will affect the rate at which you're taxed. Employees are taxed
on the income remaining after social security payments, a fixed amount of RMB4,800, and
other deductions have been taken out. In 2012 the tax rate ranged from 3 percent on monthly
salaries of RMB1,500 or less up to 45 percent for monthly salaries of RMB80,000 or more.
Most expats fall into rates of 20-30 percent. A few online websites have simple tax calcu-
lators to help you work out roughly what you'll be getting in your bank.
Tax rates are the same for both locals and foreigners. Foreigners do, however, need to
be aware of two important distinctions—one being length of stay, and the other being po-
sition seniority. The longer you live in China, the more of your income becomes liable for
taxation within China. Senior executives, such as CEOs, can be liable for taxation on all
Chinese income starting day one, whereas more junior workers will have a grace period of
183 days (90 days for countries that haven't signed the treaty on avoidance of double tax-
ation with China) before all Chinese income is up for taxation. After five consecutive full
years of stay, you are liable for tax on income made within and outside China, regardless of
your seniority.
The Five-Year Tax Rule
If you live in China for five unbroken full years you are required to file IIT on worldwide
income from the sixth year onwards. However, if you are outside of China for 30 consecut-
ive days or at least 90 days in total in one calendar year, it will not be counted as a full year,
and the five-year tax rule will not apply. The five-year rule will be reset and recommence
from your next full year in China. Be aware that your departure and arrival days in China
are counted as days in China, so you may need to add on two days to your time away to cov-
er these. This law may seem like a far-off and irrelevant idea to many people, but time has a
way of speeding by in Beijing, and with holidays structured as they are it can be hard to get
enough time off work to take the required leave. This should be something you negotiate
with your company well ahead of time and perhaps plan to take your extended China break
between contract periods. You should also consult a China tax law professional to confirm
current requirements.
