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 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.