Individual Income Tax (IIT) applies to all individuals, both Chinese and foreign nationals, who live in China or earn income from China.
Comprehensive Income Tax Rates
Comprehensive income is taxed at progressive rates ranging from 3% to 45%.
Employers must accurately calculate and withhold IIT from employment income, which includes wages, bonuses, stock options, and allowances, before paying employees their net income.
This section outlines the essential individual taxation fundamentals that employers must understand before setting up a business in China.
Taxable Income
Under the IIT Law, the following types of individual income are subject to IIT:
Wages and salaries
Remuneration for independent services (20% of the income is deductible)
Author’s remuneration (20% of the income is deductible, plus an additional 30% discount for tax purposes)
Royalties (20% of the income is deductible)
Business income
Interest, dividends, and bonuses
Property lease income
Income from property transfers
Contingent income
For resident taxpayers, the first four types of income are consolidated into "comprehensive income" and are calculated annually (although employers must still calculate and withhold IIT monthly).
The taxable income for a resident individual is determined by deducting the standard deduction (RMB 60,000 per year, approximately US$8,500), along with special deductions and any other deductions allowed by law.
IIT Withholding Rates for Resident Individuals
Level | Taxable Income (RMB) | Withholding Rate | Quick Deduction (RMB) |
1 | ≤36,000 | 3% | 0 |
2 | 36,000 - 144,000 | 10% | 2,520 |
3 | 144,000 - 300,000 | 20% | 16,920 |
4 | 300,000 - 420,000 | 25% | 31,920 |
5 | 420,000 - 660,000 | 30% | 52,920 |
6 | 660,000 - 960,000 | 35% | 85,920 |
7 | >960,000 | 45% | 181,920 |
IIT Rates for Non-Resident Individuals (Monthly)
Taxable Income (RMB) | IIT Rate | Quick Deduction (RMB) |
≤3,000 | 3% | 0 |
3,000 - 12,000 | 10% | 210 |
12,000 - 25,000 | 20% | 1,410 |
25,000 - 35,000 | 25% | 2,660 |
35,000 - 55,000 | 30% | 4,410 |
55,000 - 80,000 | 35% | 7,160 |
>80,000 | 45% | 15,160 |
For non-residents, the first four types of income are calculated separately per occurrence or per month. Non-resident individuals are allowed a standard deduction of RMB 5,000 per month (approximately US$710).
Taxpayers and Tax Liabilities
Employers must determine whether an employee is liable for IIT. The IIT Law categorises taxpayers into resident and non-resident taxpayers.
Resident Taxpayers:Â Individuals (Chinese or foreign) who stay or are expected to stay in China for at least 183 days are considered resident taxpayers.
Non-Resident Taxpayers:Â Foreigners staying in China for less than 183 days are considered non-resident taxpayers.
Six-Year Rule
Foreign individuals without a domicile in China are exempt from paying IIT on their worldwide income unless they have stayed in China for 183 days or more in each of six consecutive years. The rule began on January 1, 2019, and resets if the individual stays in China for less than 183 days in a year or leaves China for more than 30 consecutive days.
Income Sourced in China
Income derived from independent services, property leases, licensing rights, and transfer of properties within China is considered China-sourced income, regardless of where the payment is made.
Tax-Exempt Income
Certain types of income, such as awards for achievements in specific fields, interest on state bonds, insurance claims, and specific welfare benefits, are exempt from IIT.
Deductions
Standard Deductions:Â RMB 5,000 per month for all taxpayers.
Special Deductions:Â Include social insurance premiums and housing fund contributions, with regional variations.
Special Additional Deductions:Â Include expenses for childcare, education, healthcare, housing loan interest, and elderly support.
Tax-Exempt Fringe Benefits for Foreigners
Foreign employees can deduct specific fringe benefits, such as housing, meals, and education expenses, from their taxable income.
IIT Calculation and Filing
For Resident Individuals:Â IIT is calculated using a cumulative withholding method, with employers required to withhold and report IIT monthly.
For Non-Resident Individuals:Â IIT is calculated monthly, with deductions for standard and special expenses.
Annual Reconciliation
Resident taxpayers must settle their IIT between March 1 and June 30 of the following year if they meet specific income criteria.
Preferential IIT Policies in Special Regions
To attract overseas talent, some regions in China offer IIT subsidies, refunding the portion of IIT that exceeds 15% of the taxable income for qualified individuals. This policy is in place from 2019 to 2023.
Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.
Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.
Talk to an expert
Schedule a 30-mins complimentary, no-obligation call to see how Woodburn can help you. Book a call with our Head of Business Advisory - Kristina Koehler-Coluccia.
​
Topics we can advise on include:
​
Company Registration
Cloud Accounting & Financial Reporting
Cloud Payroll Services
Tax & Audit Services
Recruitment
Employer-of-Record
Visa Application
Trademark Registration
Switch to Woodburn
Partner with Woodburn (cross referral)Â
Our calls are automatically scheduled via Zoom - or via Teams, WeChat or WhatsApp upon direct request.Â
​
Our advisory calls are available from Monday-Friday from 8am to 5pm CEST and Wednesday until 9pm CEST.
Â
Comments