Overview of Tax in China_Foreiner.doc

Overview of Tax in China (The Chinese citizen) – Part II The Foreigner (Expatriate) Individual Income Tax The Standing Committee of China’s National Peoples Congress approved an adjustment in the individual income tax (IIT) threshold. Beginning September 1, 2011, tax rates for lower income brackets were reduced, while tax on higher income earners was increased.? The principal changes impacting taxation of individuals in the PRC include the following: Standard Monthly DeductionThe standard monthly deduction for PRC individuals’ employment income was increased from RMB 2,000 to RMB 3,500. The standard monthly deduction for expatriates’ employment income remains unchanged at RMB 4,800. Reporting Deadline ExtendedThe monthly IIT reporting deadline has been extended from the 7th to the 15th day after the month end. Progressive Tax RatesAs summarized below, the progressive tax rates applicable to salaries and wages changed from nine brackets to seven brackets. Individual Income Tax Changes Old ? ? New ? Grade Monthly Taxable Income Tax Rate Monthly Taxable Income Tax Rate 1 = 500 RMB 5% = 1,500 RMB 3% 2 500 x = 2,000 10% 1,500 x = 4,500 10% 3 2,000 x = 5,000 15% 4,500 x = 9,000 20% 4 5,000 x = 20,000 20% 9,000 x = 35,000 25% 5 20,000 x = 40,000 25% 35,000 x = 55,000 30% 6 40,000 x = 60,000 30% 55,000 x = 80,000 35% 7 60,000 x = 80,000 35% 80,000 45% 8 80,000 x = 100,000 40% ? ? 9 100,000 45% ? ? Scope of Application The IIT status of an expatriate in China depends on whether: ? he remains a foreign tax resident, ? he has lived in China for less than five years, ? he has lived in China for more than five years. Exception: an expatriate is not taxable on such income in China when the three following conditions are met: ? he stays in China for a period or periods that do not exceed 183 days within a calendar year; ? his income is paid by an employer who is not a resident in China; and ? his income is not borne by a permanent establishment or a fixed base of t