Individual income tax [ 中文 ]

 

IIT Law before Sept 1, 2011

IIT Law amendment on Sept 1, 2011 

IIT Law amended on Sept 1, 2018 (effective on 1st Jan 2019)

A. Impact on disposable income (after-tax income)

B. Definition of tax residents

C. the 183-day rules

D. the 5-year tax exemption period 

E. How to determine the domicile and habitual abode of an individual 

F. Tax brackets, tax rates and quick deductions

G. Computation of IIT payable 

H. Comparing month-by-month with cumulative computation methods [read]

IIT Law - Implementation Regulations, (effective on 1st Jan 2019) - promulgated by the State Council

Administrative Rules - issued by the Ministry of Finance, State Administration of Taxation

The 183-day rule [Read]

Taxation on stock option [Read]

 

 

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IIT Law Before 1^ST SEPT 2011

 

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PRC Tax Issues on Employment Income

Foreign nationals, including Hong Kong, Macau and Taiwan residents, who work in the PRC less than 365 days in the year are classified as non-residents under the PRC individual income tax law (the IIT). The source rules of employment income for non-residents are as follows:
 

1. Foreign nationals, employed by foreign company to exercise employment in the PRC, shall pay IIT subject to the condition for tax exemption being met; Otherwise the employee shall pay tax in proportion to number of days he/she works in the tax year, irrespective of where the employee receives the income.
2. Foreign nationals who enters into employment contract with an FIE should pay IIT irrespective of how long he/she works in the tax year.
3. Foreign nationals who are not employed by resident entities but are deemed to have received income from an entity set up in the PRC shall be liable to PRC IIT.

Table 1 - Tax Liability for PRC and Non-PRC Tax Residents

Period of Stay	Tax status	PRC-Source		Non PRC-Source
		Paid in PRC	Paid outside	Paid inside	Paid outside
<90 days (or 183 days)	Non-resident	v	exempt	x	x
=>90 days (or 183 days) but <365 days	Non-resident	v	v	x	x
1~5 years	Resident	v	v	v	exempt
Over 5 years	Resident	v	v	v	v

Note : the 5-year exemption period has been extended to 6 years, effective from 1st Jan 2019.

 

183-day exemption rule

If the employee stays in the PRC for a period not exceeding 183 days in a calendar year, the employee will not be liable to income tax subject to the following conditions being satisfied: (a) the salary is not borne by any entity inside the PRC; and (b) the salary is not paid or borne by any entity situated inside the PRC.

Scope for Application of 183-day Exemption Rule

The 183-day rule shall not apply in the following situations: (i) the taxation on salaries of the directors in the FIE and the salaries of the employees in senior position, and (ii) the salaries paid by or charged to the entities situated in the PRC.

 

Example I (183-day Rule)

 

Determination of Tax Obligation

Question: A Japanese national holding a position as technical manager with a representative office, stays 180 days in the PRC in a year. The salary is paid by the head office outside the PRC. The RO is granted exemption from Chinese IT since it is not engaged in any business activities. What is the tax position of the technical manager?

It is not relevant where the employee receives the salary outside the PRC. The salary is deemed to have borne by (charged to) the entity set up in the PRC if the entity is exempted from Chinese income tax, or taxed on a deemed profit basis. The deeming provision operates whether or not the salaries are recorded in the books of accounts. See SAT document Guo Shui Fa [1994] 148 and refer to table 1.
 

How to calculate the employee's working days?

Day of arrival, and day of departure shall be counted as half day respectively.

Scope of application: non-PRC domiciled individuals who hold positions both in the PRC Company and overseas Company, or who only hold position in overseas Company. See SAT document Guo Shui Fa (2004) 097.
 

What should the employee do to avoid the tax liability for worldwide income after working in the PRC for a period of five years?

The employee should leave the PRC for a period of more than 30 days continuously in the sixth year. Alternatively the employee can stay outside the PRC for an aggregate of 90 days if the absence is not continuous. By staying physically outside the PRC for that period, the employee is considered to be a non-tax resident for that particular year. The five-year period will start afresh in the sixth year.
 

Example II

 

IIT Computation

An employee is assigned to work in Guangzhou. Monthly salary is HK$25,000 (=RMB26,000, including housing allowance of RMB3,000). The employer pays the salary outside the PRC. The employee rents a flat in GZ, and obtains the tax invoice from the landlord.

(A) The employee bears the IIT

Taxable income = Salary - Standard deduction - tax-exempt income

IIT payable = taxable income x tax rate - quick deduction

Taxable income = RMB26,000 - RMB4,800 - RMB3,000 = RMB18,200

IIT payable = RMB18,200 x 20% -375 = RMB3,265(Note: The tax rate of 20% and quick deduction 375 are obtainable from Table II.)

(B) The employer bears the IIT

Taxable income = (salary - standard deduction - tax-exempt income - quick deduction) / (1 - tax rate)

IIT payable = Taxable income x tax rate - quick deduction

Taxable income = (RMB26,000 - RMB4,800 - RMB3,000 - 1,375) / (1 - 25%) = RMB22,433.33

IIT payable = RMB22,433.33 x 25% - 1,375 = RMB4,233.33(Note: The tax rate 25% and quick deduction 1,375 are obtainable from Table II.)

The employer and the employee may reach an agreement on how the IIT is to be shared.

 

Table II: PRC Income Tax Rates and Brackets in RMB

* Note the income brackets, tax rates, and quick deduction have been changed since 2011-09-01, amended again and effective on 2019-01-01

	Tax born by employee	Tax born by employer	Tax rate	Quick deduction
1	Less than 500	Less than 475	5%	0
2	501 - 2,000	476 - 1,825	10%	25
3	2,001 - 5,000	1,826 - 4,375	15%	125
4	5,001 - 20,000	4,376 - 16,375	20%	375
5	20,001 - 40,000	16,376 - 31,375	25%	1,375
6	40,000 - 60,000	31,376 - 45,375	30%	3,375
7	60,001 - 80,000	48,376 - 58,375	35%	6,375
8	80,001 - 100,000	58,376 - 70,375	40%	10,375
9	Over 100,000	Over 70,375	45%	15,375

 

Example III

Taxation on year-end bonus

An employee working for an FIE is paid a year-end bonus of RMB52,000. The liability for IIT is computed as below:

Dividing the bonus by 12 months, then the quotient is used to determine the tax rate and quick deduction. RMB52,000 / 12 = RMB4,333.33

Taxable income = Year-end bonus (No standard deduction) = RMB52,000

IIT payable = taxable income x tax rate - quick deduction
= RMB52,000 x 15% - 125* (Note)
= RMB7,675

Statutory deduction & Items exempted from IIT

1. Standard deduction RMB1,600 and addition deduction RMB3,200;
2. Social security contributions within prescribed limits (See SAT document Guo Shui Fa (2006) No. 10);
3. The following items with supporting tax invoices: housing allowance; meal allowance, language training fees, child education fees, the passage for visit to home country, etc. See SAT document Guo Shui Fa (1997) No. 54.

 

Taxation on Directors' Fee

Directors' fee and remuneration of senior staff, is subject to tax under the independent service category. See Guo Shui Fa (2004) No. 097

Standard deduction : Standard deduction is RMB1,600 for income not exceeding RMB4,000; 20% for income of RMB4,000 or above

Table III: Tax rates and brackets (Independent Services)

Bracket	Including tax (Employee bears tax)	Excluding tax (Company bears tax)	Tax Rate	Quick Reduction
1	Not exceeding 20,000	Not exceeding 16,000	20%	0
2	Over 20,000 to 50,000	Over 16,000 to 37,000	30%	2,000
3	Over 50,000	Over 37,000	40%	7,000

 * Note : the above tax bracket, tax rate and quick deduction has been amended since 1st Jan 2019. 

The director of an FIE receives a fee of RMB80,000 in the month. The individual income tax liability is as follows:

Taxable income = RMB80,000 - (1 - 20%) = RMB64,000
IIT payable : RMB64,000 x 20% = RMB12,800;
(50,000 -20,000) x 20% x 50% = 3,000;
(64,000 - 50,000) x 20% x 100% = 2,800;
12,800 + 3,000 + 2,800 = 18,600

Alternatively, the computation can be done by using the quick deduction as below

IIT payable = RMB64,000 x 40% - 7,000 = RMB18,600

 

What if the director only stays a few days in the PRC for each month?
If the director's is paid by the FIE, the director's fee should be taxed in whole; if the director's fee is paid by the holding company and receives the salaries outside the PRC, the director's fee is taxed on a time-apportioned basis.

See SAT Bulletins [1994] 89, [1995] 125, [2004] 97 {Read}, and [2007] 946 {Read}.

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Individual Income Tax Law amendment On Sept 1, 2011 (Partly repealed)

A Summary of the Relevant Individual Income Tax Law (the IIT Law) for Non-residents Working Temporarily in China [Read] (Note : The income tax tables have been repealed by the 2018 amendment to the IIT law)

 

 

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Individual Income Tax Law amendment on Sept 1, 2018 and effective on 1st January 2019

The 2018 amendment of the PRC IIT law has impact on the following areas:

 

A. Impact on disposable income (after-tax income)

The taxpayer has more after-tax income than previously (before taking into consideration of social security contribution). Note that the after-tax income is calculated assuming that the same level of social security contribution as previously. 

 

 

 

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Administrative Tax Rules (in Chinese)

• Change of Form and Contents for Tax Payment Certificates, issued by the State Administration of Taxation under Administrative Order [2018] 055
• Issue on change-over arrangements for the IIT Law, issued by the State Administration of Taxation under Administrative Order [2018] 056
• Taxpayer Identification Number [TIN], issued by State Administration of Taxation under Administrative Order [2018] 059
• Additional Deduction for Specified Items (Pilot Run), issued by the SAT under Administrative Order [2018] 060
• IIT Withholding, Payment and Filing (Pilot Run), issued by the SAT under Administrative Order [2018] 061