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Tax Filing in China: A Guide for Overseas Employers

If you are assigning staff to work in China there are a number of regulations and timelines to follow for withholding, payment and filing of individual income tax (IIT).  Because our clients frequently come to us with questions about the specific rules, we have put together this overview of Chinese tax regulations and a few case examples.

Tax Filing in China

Like many countries, China’s tax year ends on December 31, and IIT returns are due by March 31 of the following year.  Extensions of the filing deadline are only granted for special circumstances.

Taxation on earnings applies to both Chinese and foreign workers on assignment.  Married couples should be aware that there are no joint tax returns in China, and husbands and wives will file and pay tax separately.

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When to pay Tax in China

If you are foreigner working in China, you are taxed differently than a Chinese national.  The exact rules will depend on how long you are in the country working using the following guidelines:

  • Less than 90 days with an overseas employer (no Chinese branch) = no tax
  • Less than 183 days per year and if your home country has tax treaty with China = no tax
  • More than 183 days but less than a year = taxed only on income earned in China
  • More than one year but less than five years = taxed on worldwide income (with some concessions)
  • More than six years = taxed on full amount of worldwide income (but can look to tax treaties for credits and to avoid double taxation at home)

Individual Income Tax in China

There are 11 possible sources of income which can be taxed in China according to the Individual Income Tax Law:

  1. Employment income (earned in China and in some cases, worldwide)
  2. Business income (sole proprietorship)
  3. Business income (contract or lease basis)
  4. Payment for labor services
  5. Author’s remuneration
  6. Royalties
  7. Interest, and investment income such as dividends
  8. Rental income
  9. Capital gain from transfer of property
  10. Incidental income
  11. Any other income deemed to be taxable by the Ministry of Finance of the State Council

How is Income Tax Paid in China?

China follows a fairly standard withholding and reporting schedule for IIT, and employers will withhold tax from their employees’ salary and file monthly on their behalf.  Filing of the annual tax return due on March 31 remains the responsibility of the employee, but there are special rules if income exceeds a certain threshold and one of our clients had a question about what is required.

  • Case Example: What to do if Income Exceeds RMB120,000?

The Issue:  Our client had staff being paid more than RMB120,000 annually and needed to know how to proceed with tax filing.

Solution:  We gave them the following explanation that in China, employees whose incomes are higher than 120,000 RMB per year are required to conduct an annual online (no paperwork required) individual income tax report before March 31 on a self-declaration basis.

It is the employees’ responsibility to perform the IIT filing themselves, and for expats the online filing process may be new to them. The annual filing is solely the individual’s obligation and not the employer’s.  It is good practice to notify employees when their income exceeds 120,000 RMB and remind them to file their ITT before the deadline, and so our local partner agreed to email them a reminder.

  • Case Example: Tax Filing and Districts in China

The Issue:  Our client had two employees, one in Shanghai and the other in Guangzho, and wondered if there was any difference in filing requirements.

Solution:  The online filing is logged under the tax district where they are working, so that is where the employees file the supporting documents for their return.  The employee in Shanghai also has the option of filing on WeChat.  Due to differences in tax district rules it is worth looking into it prior to filing.

We advised them that based on our local partner’s previous experience, the online system will show their total taxable amount based on the employer’s reporting during the tax year.  If the amount shown is correct, then all they have to do is click submit.

The Shield GEO Solution

Assisting our clients navigate China’s tax regulations is one way that we can support your staff on assignment.  Our in-country experts have the experience and know the nuances of Chinese tax payment and filing, and how to avoid non-compliance with withholding rules and filing deadlines.

We provide an employment solution for companies and HR departments who may be new to China, or want a partner to assist with immigration, payroll and taxation.  We make international employment simple.

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