The tax system in China: do foreigners pay taxes?

Before starting work in China, your prospective employer is required to explain to you how the individual income tax is calculated and paid.

Determining the applicability of taxes on foreigners working in China is not easy. In the case of the “Individual Income Tax” (IIT), it is first of all necessary to decode a series of regulations and criteria that intersect with each other. Next, the precise financial liability and any applicable deductions must be calculated.

To determine whether a foreigner working in China is subject to taxation or not, it is necessary to take into account the time spent in China, the source of his income and the location of the employer.

The income obtained inside or outside the Chinese territory is determined by the actual working period spent by the individual in China, regardless of where the employer is located. There four kinds of scenery regarding the payment of the taxes:

• A foreign individual who has worked in China for less than 90 days within a fiscal year is required to pay the IIT only on the basis of the profit obtained from the work done in Chinese territory and on the basis of the salary received from national institutions or organizations and Chinese companies. In this case, you are exempt on income from work outside China.
• An individual who has resided in China for more than 90 days but less than a year during the tax year is subject to the IIT on all earnings generated in Chinese territory, including those paid by both Chinese entities and foreign entities for their work. in China. Earnings earned from work outside China are not subject to IIT.
• A foreign individual who resides in China for more than one year but less than five years is required to pay the IIT for the salary received for work done in China regardless of the nationality of the employer.

A foreign individual residing in China for more than five consecutive years could be subject to IIT, in the same way as Chinese residents. This depends on the length of residence in China after the beginning of the sixth year of stay.

As in many countries, the IIT is collected through a progressive tax rate. Foreign workers in China are entitled to a standard tax deduction of RMB 4,800. In addition, there are a number of subsidies that can be deducted from each individual’s income.