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) Answer:
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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) Answer: 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. | ||||||||||||||
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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.
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5. |
How does one calculate the amount of taxable income for foreign individuals? Answer: 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 income-monthly deduction =10,000-4,800=5,200 Tax payable= taxable income×tax rate ?quick deduction =5200?0% -375=665 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 =[(10,000+5,000+1,000)-4,800-375]?#65288;1-20%)=13,531.25 Tax payable = 13,531.25?0%-375=2,331.25 | ||||||||||||||
6. | How does one calculate the individual income tax other than wages and salaries? Answer:
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7. |
Which types of income derived by foreign individuals can be exempt from IIT? Answer: At present, the following types of income by foreign individuals can be exempt from IIT:
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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 Peoples 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? Answer: There are two methods of reporting and paying IIT for foreign individuals:
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 ones 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:
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