Guidelines on China’s Individual Income Tax System
In a bid to streamline China’s legal framework, several aspects of the regulatory systems in China have seen changes. One of these regulatory aspects that have seen transformations in its legal framework is its Individual Income Tax System, IIT.
How straightforward is China’s Individual Income Tax System?
China’s Individual Income Tax System can be quite complex, more so when it comes to calculating the Individual Income Tax. This is because the Individual Income Tax system provides a specific method for calculating the Individual Income Tax, which has proved challenging to a number, more so foreigners, when it comes to this task.
As such, for foreigners, it would be most appropriate to work with a team of experts specializing in Tax Services in China to help work out this on your behalf. Below is an overview of the basics to know about China’s Individual Income Tax system. However, it is always advisable to partner with a professional team to help your company with China tax services.
Understanding Taxable Income in China
According to the set of rules and regulations around Income Tax in China, income is derived from various and different sources. And the tax rates levied on the earnings for Individual Income Tax calculation purposes as well differ. China’s Individual Income Tax law renders that there are nine different sources of income, and these are:
Wages and Salaries
Author’s remuneration
Labour service remuneration
Operating Income
Royalty income
Interest, Dividend and Bonus Income
Income derived from the lease of property
Income earned from the transfer of property ownership
Incidental income
Are there any Deductions on Taxable Income?
Yes, there are. The tax burden can be so high had it not been for the deductions applied on the amount of taxable income. First, note the monthly tax-free salary capped at RMB 5,000, which applies to Chinese nationals and foreigners alike, domiciled and non-domiciled individuals as well.
On top of this, you will also deduct contributions made to the social security scheme from the amount of taxable income. The same applies to contributions to the national housing scheme. These are contributions towards the basic pension insurance, basic medical insurance, unemployment insurance and the housing provident fund, all of which are deducted from an individual’s gross salary.
Foreign individuals in Shanghai aren’t supposed to make contributions to the national housing provident fund. Note that China tax issues can be technical and time-consuming for you to grasp fully. Find a reputable accounting firm to handle your tax services in China. You can count on a team of experts to address these to perfection as a foreigner investing in China for all your China tax services.
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