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Residents are generally subject to China individual income tax (IIT) on their worldwide income. Non-residents are generally taxed in China on their China-source income only.
An individual is taxed in China on one's income by category. China's IIT law groups personal income into 9 categories.
The 9 categories of income are:
- Employment income (i.e. wages and salaries)
- Remuneration for labour services
- Author's remuneration
- Business income
- Interest, dividends, and profit distribution
- Rental income
- Income from transfer of property
- Incidental income
Each income category has its own tax rate(s), allowable deductions, etc.
For residents, employment income, remuneration for labour services, author’s remuneration and royalties are combined as “comprehensive income” for aggregate tax calculation purpose on an annual basis. Income from the other categories is taxed separately by category on a monthly or transaction basis.
For non-residents, income from each of the 9 categories is taxed separately on a monthly or transaction basis.
Personal Income Tax Rates
1. Comprehensive Income Tax Rates
For residents, calculation of IIT on annual comprehensive income is based on progressive tax rates (see Table I below) using the following formula:
(Annual taxable income x Tax rate) - Quick deduction
Annual taxable income after deducting the standard basic deduction, specific deductions, specific additional deductions and other allowable deductions For non-residents, IIT on employment income, remuneration for labour services, author’s remuneration and royalties is calculated by each category on a monthly or transaction basis at below progressive tax rates (see Table II below).
Business Income Tax Rates
Income earned by individuals from privately-owned businesses, sole proprietorship enterprises, or partnerships is generally subject to IIT at progressive rates from 5% to 35%, as follows:
Tax Rates For Other Personal Income
A flat rate of 20% is applied on the remaining categories of income, including incidental income, rental income, interest income, dividends, and capital gains, unless specifically reduced by the State Council.
Local Income Taxes
There are no local taxes on personal income in China.
China-domiciled individuals and non-China-domiciled individuals who reside in China for 183 days or more in a tax year are considered residents for IIT purposes. Residents in general are subject to IIT on their worldwide income.
Non-China-domiciled individuals who reside in China for less than 183 days in a tax year are considered non-residents for IIT purpose. Non-residents in general are subject to IIT on their China-source income only.
China-domiciled individuals are those who maintain residence in China because of their legal residency status, family, or economic ties and who habitually reside in China.
Chinese nationals, excluding residents of Hong Kong, Macau, and Taiwan who are normally considered as non-China-domiciled individuals, are generally considered to have a domicile in China.
Foreign individuals and residents of Hong Kong, Macau, and Taiwan are generally taxed in accordance with their physical presence in China, as follows:
Foreign individuals who reside in China for less than 183 days will be taxed only on their China-source income.
Foreign individuals who reside in China for 183 days or more in a tax year but not more than six consecutive years will be subject to tax on both their China-source income and their foreign-source income. However, as a concession, foreign-source income is taxed only to the extent of income paid and/or borne by a China entity or individual.
Foreign individuals who reside in China for 183 days or more per year for over six consecutive years will be subject to IIT on their worldwide income from the seventh consecutive year onward if foreign individuals reside in China for 183 days or more during the year.
Foreign individuals who travel to China and derive income from an overseas employer with no permanent establishment in China will be tax exempt if they do not physically stay in China cumulatively for more than 90 days in a calendar year. If the individual is a tax resident of a country/region that has concluded a tax treaty/arrangement with China, the 90-day threshold is extended to 183 days during a calendar year or any 12 consecutive months, depending on the applicable tax treaty/arrangement.
The following categories of income, regardless of whether the payments are made within China or not, are considered China-source income:
Income derived from employment or contracted labour services performed within the territory of China.
Rental income in relation to property used within the territory of China.
Income derived from the transfer of real property located within China or other property transfer transaction incurred within the territory of China.
Income derived through the grant of various franchises to be used within the territory of China.
Interest and dividend income paid by companies, enterprises, other organisations, or resident individuals within the territory of China.