Business Monday: Salary, Taxes, Bonus & Social Security in China

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 The foreigner staying in china for 5 consecutive years without leaving china for more than 30 consecutive days has to pay taxes on all of his income, paid by Chinese or foreign companies, in China or abroad.

The foreigner staying in China for more than a year, but less than 5 years will have to pay taxes on all of his income paid in China and Chinese income paid abroad.

 

China-Currency-WFOE-Tax

 

When a foreigner comes in China, he must obtain the working permit. After that he will apply for the residence permit. Once he possesses these two documents he will have to register for the tax. All that done he will be able to sign working contracts and to work in China.

The income tax rate system in China

The income tax rate varies depending on the amount of the income. The more you earn, the bigger the tax rate will be. 


Monthly taxable income

in Yuan

Tax rate

Deduction in Yuan 

0 - 1500

3%

0

1501 - 4500

10%

105

4501-9000

20%

555

9001 - 35000

25%

1005

35001 - 55000

30%

2755

55001 - 80000

35%

5505

80001 and over

45%

13505

 

Monthly taxable income = Monthly income – RMB 4,800 (Standard deduction) – Allowances.

Tax payable = Monthly taxable income × Applicable tax rate – Quick calculation deduction.


?

Who is subjected to taxes in China

The foreigner staying in china for 5 consecutive years without leaving china for more than 30 consecutive days has to pay taxes on all of his income, paid by Chinese or foreign companies, in China or abroad.

 

The foreigner staying in China for more than a year, but less than 5 years will have to pay taxes on all of his income paid in China and Chinese income paid abroad.

 

The foreigner staying in China for less than a year but more than 90 days, or 183 days if the country of the citizenship has an agreement with China, will pay taxes on his salary paid in China.

 

The foreigner staying in China for less than 90 days, or less than 183 days if the country of citizenship has an agreement with china, will only pay taxes on his Chinese salary paid in China.

1

What is subjected to the individual income tax?

The income (The Chinese social security being deducted)

The bonus

The living allowances

Expatriate premiums (The benefits granted to the expatriates)

Mobility premiums (The benefits granted to the employees who have to move to different places to work)

The employer’s contribution to the country’s employee social security is also subjected to the individual income tax. The employee contribution to its country’s social security cannot be deducted from its taxable income.


Equity based compensation

Some expenses can be deducted from their taxes. The exemptions include the cost of the employee's meal, the amount spent for the laundry, the Chinese class taken by the employee, the education fee for the employee's children and two plane tickets to the employee's home country.

 

Each expense must be supported by an invoice.

Benefits of the year-end bonus

Year-End bonuses can be calculated in a way to make the employee to pay less tax and save money.

The Year-end bonus is considered as a year payment. Therefore, the bonus must be divided by 12 to find the tax rate. Depending on the tax rate, a certain amount will also be deducted from the tax on the year-end bonus. Considering the way the tax on the year-end bonus is calculated we can see that a difference of some yuan can cost thousands of yuan to the employee. 

 

The following table shows how a difference of 1 yuan can result in a big difference of Individual Income Tax payment.

 

The year bonus policy can be only done once per year.


Annual Bonus Amount (in Yuan)

Tax Rate Applicable

Annual Bonus Amount (in Yuan)

Tax Rate Applicable

Difference (in Yuan)

18000

3%

18001

10%

1154.10

54000

10%

54001

20%

4950.20

108000

20%

108001

25%

4950.25

420000

25%

420001

30%

19250.3

660000

30%

660001

35%

30250.35

960000

35%

960001

45%

88000.45

 

Bonus tailoring case study:

To be quick getting a higher tax grade mean higher tax percent, but higher quick deduction, let’s see a case study:

Louis is working in company A, he gets 9000 per month of salary and a quarterly bonus of 4500
(9000 * 12) + (4500 * 4) = 126 000 Annual income

Marc is working in company B, he gets 9000 per month of salary and a annually bonus of 18000
(9000 * 12) + (18000) = 126 000 Annual income

Louis will be taxed on a 9000 + ( (4500*3) / 12 ) = 10125 salary; one of his bonus will be counted as a separate tax and the 3 others will be split on 12 month. This salary put him to 25% taxes and allows him a 1050 quick taxes deduction.

One of his quarterly bonus will be split  in 12 month and taxed at 3% with no quick tax deduction  ( 4500 /12 ) * 3%  = 11.25 
His burden will be  (10125 – 4800 * 0.25) – 1050  + 11.25 = 292.5   // 3510 per year

Marc, according to the upper table, will be taxed at 20% on his monthly salary and will enjoy a 555 taxes quick deduction. Additionally his annual bonus 18 000 will be split in 12 month, and taxed separately at the rate of 3% and with a quick tax reduction of 0; 18000/12*0.03 = 45

His taxes will be: ( (9000 – 4800) * 0.2 ) – 555   +  45  = 330 per month  //  3960 per year

 

The Louis and Marc case showed us a 11% difference in taxes amount because bonus was tailored in order to put Louis in a higher tax grade, with higher taxes quick deduction.

Please send us an email to This email address is being protected from spambots. You need JavaScript enabled to view it. if you need free advice to tailor legally your or your employees salaries

2

Chinese Social Security System

China Social Insurance is made up of 5 parts.


1- Pension: Generally, the biggest part of Chinese Social Insurance. Monthly Contributed by the employee and the employer. Its goal is to guarantee the employee a regular income once he is retired.                   

2- Medical Insurance: The employee and the employer must contribute to this medical insurance. In China, the medical fees must be partially paid by the patient. The medical insurance goal is to make sure the China-residents can get a treatment when they need it.

3-Unemployment Insurance: The employer must contribute to the unemployment insurance. Most of, but not all, the cities in China require the employee to contribute to that insurance. If the employee that has contributed for at least one year gets dismissed, he will receive unemployment benefits.

4-Maternity Insurance: The employer is the only one to contribute to that insurance. The employee that is pregnant will benefit from that insurance to cover its salary during the time she is not working and will be able to cover part of the childbirth cost with it.

5- Occupational Injury Insurance: The employer is the only one to contribute to that insurance. The amount will depend on the dangerousness of the work. The more dangerous the work is, the higher the rate will be. Tianjin Social Insurance Bureau will assess the rate applicable.

 

%

Employee 

Part

Employer

Part

Minimal

Total Cost*

Pension

27%

8%

19%

800,82

Medical

13%

2%

11%

385,58

Unemployement

1,50%

0,5%

1%

44,49

Maternity

0,50%

0%

0,50%

14,83

Injury

0,40%

0%

0,40%

11,86

Total

42,40%

10,5%

31,90%

1257,58

*Based on the minimal 2966元 salary

Some countries benefit from a bilateral social security agreement. Germany, Finland, Switzerland, Denmark  (Pensions and Employment), South Korea, Canada(pensions), are the countries who have a coordinate social security program with China.

 

The employee and the employer also have to contribute to the housing fund. The housing fund can be used by the employee to buy, construct or renovate a house. 


How to withdraw the amount contributed if you leave China.

The contributions to the Chinese social security are paid to a National fund and a personal fund.

The nation-wide fund is a social fund. It is aimed at all the people who have contributed to it.

The personal fund is different. The amount paid to this fund is only aimed at the employee.

If the foreign employee leaves China, he will only be able to withdraw the amount that has been contributed on the Personal fund. The employee must end his employment and get a stamped letter from the employer that he will have to fill in. After that the employer will bring the form to the Human Resources bureau and the social security bureau. The employee also has to fill in Personal Pension Insurance Deposit Withdrawal Application Form for insured foreigners.

 

 

 

 

 

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