pay less IIT tax in China
Individual Income Tax China
This guide helps you to understand income tax in China and even provides tips how to pay less tax! Individual Income Tax (IIT) is a form of tax you have to pay over your salary in China. Your employer should already withhold the correct amount of tax so for individuals it's very easy. The tax levels in Shenzhen/China progressively increase from 5% to 45% (for the part of your salary over 100K rmb/month). Chinese nationals don't have to pay tax over the first 2000RMB of their income and foreigners enjoy a tax-free limit of 4800RMB. With the help of the table below, it's easy to calculate how much tax you have to pay in China:
How to pay less tax in China
Grade Monthly Taxable Income Tax Rate (%) Quick Deduction (makes calculation below easier)
1 Income of 500 yuan or less 5 0
2 That part of income in excess of 500 to 2,000 yuan 10 25
3 That part of income in excess of 2,000 to 5,000 yuan 15 125
4 That part of income in excess of 5,000 to 20,000 yuan 20 375
5 That part of income in excess of 20,000 to 40,000 yuan 25 1375
6 That part of income in excess of 40,000 to 60,000 yuan 30 3375
7 That part of income in excess of 60,000 to 80,000 yuan 35 6375
8 That part of income in excess of 80,000 to 100,000 yuan 40 10375
9 That part of income in excess of 100,000 yuan 45 15375
The formula for computing the amount of tax payable is:
Monthly taxable income = Monthly aggregate wages/salaries - 4800 yuan (foreigner)
Monthly amount of tax payable = Monthly taxable income ЧApplicable rate (see table above) - Quick deduction
Suppose you earn 10.000 RMB/month in China as a foreigner;
Your monthly taxable income is then 10.000 - 4800 = 5200 RMB. 5200 RMB * 0.20 (20% tax rate for 5000-20000) = 1040 - 375 (quick deduct) = 665 RMB tax per month. Because your employer should already withhold the tax, you should receive 9335 RMB in your bank account. (that amounts to about 7%)
How to pay less IIT tax in China
I think the Chinese tax-system is already quite reasonable (for example lower levels than in the Netherlands), but you can pay even less tax if you pay for certain expenses and have invoices for them. Tip: start asking those invoices in restaurants and save them!
The Chinese government has a tax-benefit program for foreigners in China. You can only benefit from this program via your employer (that means: you employer needs to arrange it). The "Expatriate IIT relief" allows you to declare certain costs (such as food, steam drying clothes, one time moving fees, children's tuition etc). Because you already paid tax over those items, they allow you to pay less tax over your income. So for example when you hand in 1000RMB worth of official invoices (fapiao) for eating in a month to your HR department, you can pay 200RMB (20% of of 1000) less in personal income tax (your HR department deducts that 200 from the amount of tax you pay). I guess that one time moving fees work the same: you would hand in the airplane tickets and perhaps shipping invoices etc (up to a limit based on your salary). Your company can then deduct that from your personal income tax. Because you get the money "back" via personal income tax, and because your employer already deducts the tax for you, you need their help with it. I suppose your employer needs to apply once to the government to take part in this plan, but I'm not sure about this.
The exact list of items:
Fees incurred by family visits
Language training fees
One-time expenses for moving
The amount of money you can declare, depends on your salary. The table below shows the details:
Monthly salary range
Monthly Max Amount for
100K and above 21000 (2+3<=3500)
50K-100K below 13000 (2+3<=3000)
20K-50K below 9000 (2+3<=2500)
20K below 5300 (2+3<=2000)
The amount for items 6 and 7 is based on the actual costs.
So for example you earn 10.000 RMB per month. That means you can hand in 2000 RMB worth of invoices from restaurants each month. You can also add your utility + rent bills and whatever is applicable to the housing allowance. The total should be below 5300 though. For example you hand in 2000 RMB in total. Normally you would pay 665 RMB tax (see IIT above), but now you will get a tax-break of 20% of 2000RMB (400 RMB), so you will only pay 265RMB tax in a month! If your houserent is for example over 1325 RMB/month, that would mean you pay no IIT tax at all anymore!
The procedure works like this:
Your HR department will ask you to sign an agreement stating that you only hand in real invoices
Before the middle of each month, you hand in an overview of your costs during the previous month + original invoices (fapiao)
The HR department checks the invoices and calculates the tax-deduction (20% of what you hand in).
In your next salary statement you will see the lower tax rate