China Individual Income Tax for Foreign Individuals
1.What kind of foreign individuals shall pay Individual Income Tax (IIT) in China? (Definition of Foreign Individuals)
(1) Foreigners and residents of the regions of Hong Kong, Macau and Taiwan (hereinafter referred to as "Foreign Individuals") who derive income from work or employment with enterprises or organisations within the territory of China
(2) Foreign individuals who derive income from personal services provided (including design work, shows, performances, advisory positions, brokerage services, agency services, etc.)
(3) Foreign individuals who derive income from author's remuneration, royalties, interest, dividends, bonuses, the lease of property, transfer of property, contingent income and income from other sources inside China
2. Would the wages and salaries paid by enterprises or individuals outside the PRC be regarded as income derived inside China? (Determination of individual income sources)
For the wages and salaries derived by the foreign individuals, the place where he/she works is considered the source of income. The location of payment is not relevant in determining the income source.
In other words, wages and salaries derived by the foreign individual for work while inside China will be considered as China-based income, regardless of whether they are paid by enterprises or individuals inside or outside China. Wages and salaries derived by the foreign individual for work while outside China will be considered as income based outside China, regardless of whether they are paid by enterprises or individuals inside or outside China.
3. How does one determine tax liabilities for foreign individuals?
Answer: Non-resident individuals who do not live in China but receive income from China, and those non-residents who live in China for less than one year, must pay individual income tax on income derived from sources within China.
Non-resident taxpayers working in China for less than 90 days or those from tax-treaty countries residing in China for less than 183 days shall pay individual income tax on income paid by their employers within China or on income not paid but incurred by foreign establishments located within China.
A non-resident taxpayer residing in China for more than 90 days (183 days for those from tax-treaty countries) but less than one year shall pay his individual income tax on all the income paid by his employers both inside and outside of China during his service in China.
Resident taxpayers are individuals who have domicile in China, or those without domicile but who have resided in China for one year or more. They shall pay their individual income tax on their income derived from sources both inside and outside of China.
In practice, their tax liabilities may be different depending on the locations where their income is paid. For example, a resident taxpayer residing in China for one year or more but less than five years shall pay his individual income tax on both income derived from sources within China and income derived from sources outside of China but paid by corporations, enterprises and other economic organizations or individuals within China. He is exempted from individual income tax on income derived from sources outside of China and paid by corporations outside of China when so granted by tax authorities.
A resident taxpayer residing in China for more than five years, like other domestic resident taxpayers, shall pay his individual income tax on income derived from sources both inside and outside of China.
4. How does one determine the income source for incomes other than wages and salaries derived by foreign individuals?
Answer: The following types of income shall be considered as PRC-based income regardless of whether the payment is made inside or outside of China.
(1) Income from the lease of property to a lessee for use inside China
(2) Income from the assignment of property such as buildings, land use rights, etc. inside China or the assignment of any other property inside the People’s Republic of China.
(3) Income from any kind of licensing rights for use inside China
(4) Income from interest, dividends and extra dividends derived from companies, enterprises and other economic organizations or individuals inside China.
5. How does one calculate the amount of taxable income for foreign individuals?
A. General calculating method
Income from wages and salaries shall be taxed by progressive rates ranging from 5% to 45% after a monthly deduction of 4,800 yuan(effective from Jan. 1, 2006).
For example, if a foreign individual works in a foreign-invested enterprise and earns RMB 10,000 in May 2005, then:
Taxable income = monthly income65293;monthly deduction
Tax payable= taxable income×tax rate ?quick deduction
B. How does one calculate individual income tax if an entity or individual pays the individual income tax for a foreign individual?
Taxable income=(income after individual income tax ?monthly deduction ?quick deduction) ?(1 ?tax rate)
Tax payable = taxable income ?tax rate ?quick deduction
For example, a foreign individual employed by a foreign-invested enterprise as a financial consultant in China in May 2005 having a total salary of RMB 10, 000, a bonus of RMB 5, 000, and an allowance of RMB 1, 000 after individual income tax would calculate:
Taxable income =65339;65288;10,00065291;5,00065291;1,00065289;65293;4,80065293;37565341;?#65288;165293;20%65289;65309;13,531.25
Tax payable = 13,531.25?0%65293;37565309;2,331.25
6. How does one calculate the individual income tax other than wages and salaries?
(1) Remuneration for personal services, author?s remuneration, royalties, and income from lease of property
When each income payment is less than RMB 4,000, taxable income = income ?RMB800
When each payment of the income is over 4, 000, taxable income = income ?(1-20%)
Tax payable = taxable income×tax rate (20%)
Remarks: For income from remuneration for personal services, an additional liability of 50% and 100% of the normal tax payable shall be levied on the taxable income exceeding RMB 20,000 and RMB 50,000 respectively.
For income derived from manuscripts, the individual income tax should be levied with a reduction of 30% of the tax payable.
(2) income from lease of property
Taxable income = income from each transfer of property ?(original value of property + reasonable expenses)
Tax payable = taxable income ?tax rate (20%)
(3)Income from interest, dividends, bonuses, incidental income and income from other sources
amount of tax payable = income per payment ×tax rate (20%)
7. Which types of income derived by foreign individuals can be exempt from IIT?
At present, the following types of income by foreign individuals can be exempt from IIT:
(1) Foreign individuals are exempted from individual income tax for their income from interest, dividends and bonuses from enterprises with foreign investments in China.
(2) Foreign individual B or H shareholders are exempted from individual income tax on their dividends and bonuses from the share issuing enterprises in China.
(3) Foreign individuals obtaining a housing allowance, meal allowance, relocation and laundry expenses not in the form of cash or on an actual reimbursement basis
(4) Reasonable traveling allowance for business trips inside or outside of China
(5) The portions of home-leave expenses, language-training expenses, and education expenses for children that are approved by local tax authorities as reasonable
(6) Foreign staff in consulates and embassies can enjoy individual income tax exemption in accordance with the provisions of the related laws.
(7) Experts who are sent to work in China under international exchange agreements or by the United Nations
8. How does one calculate individual income tax for foreign currency income earned by foreign individuals?
Answer: Foreign individuals shall file tax returns with and pay individual income tax to the tax authorities in RMB.
Income in foreign currency shall be converted into RMB according to the exchange rate published by the People’s Bank of China on the last day of the previous month before the tax payment receipt is issued.
9. What are the methods of reporting and paying individual income tax for foreign individuals?
There are two methods of reporting and paying IIT for foreign individuals:
(1) The paying enterprise or individual will act as the withholding agent and withhold the IIT upon payment of income.
Taxpayers do not need to file a tax return.
(2) Taxpayers who derive wages and salaries from two or more locations, or from overseas should file the tax returns and pay the IIT to the tax authorities by themselves.
Foreign individuals can appoint a tax agent to handle their IIT filing.
10.How does a foreign individual perform tax registration?
Answer: Foreign taxpayers or withholding agents must apply for tax registration within 15 days of the date that the taxpayer is employed and his or her contract becomes valid.
The following procedures for registration apply and the following documents are required:
1. Copy of one’s passport;
2. Copy of the Employment Contract;
3. Copy of the working permit.
11. What is the penalty if foreign individuals do not file and pay IIT according to the regulations?
Answer: (1) Where a taxpayer has failed to apply for tax registration or to go through the formalities for tax declaration within a prescribed time limit, or where a withholding agent has failed to furnish statements on the tax withheld and remitted or collected and remitted to the tax authorities within a prescribed time limit, the tax authorities shall order the taxpayer or withholding agent to rectify within a fixed period of time and may impose a fine of not more than 2,000 yuan, or, if the circumstances are serious, a fine of not less than 2,000 yuan but not more than 10, 000 yuan.
(2) Where a taxpayer fails to pay tax due within a prescribed time limit or a withholding agent fails to remit tax payments within a prescribed time limit, the tax authorities shall, in addition to ordering the taxpayer or withholding agent to pay or remit the tax within a fixed period of time, impose a surcharge on a daily basis at the rate of 0.05% of the amount of tax in arrears, commencing on the day the tax payment is in default.
(3) Where a taxpayer or a withholding agent fails to pay, or underpays the amount of tax payable by “tax evasion? the tax authorities shall pursue the payment of the amount of tax which has not been paid or has been underpaid and surcharge and impose a fine of not less than 50% but not more than five times the amount of tax which has not been paid or has been underpaid.
(4) Should a taxpayer who has not paid or has underpaid the amount of tax payable need to leave China, they shall settle the amount of tax payable and surcharge with the tax authorities, or provide a guaranty to the authorities before leaving the country. If the taxpayer neither settles the amount of tax payable and surcharge nor provides a guaranty, the tax authorities may notify the exit administration authorities to prevent the taxpayer from leaving the country.