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Author Topic: INCOME Tax Rates - Eff. 11/09/01  (Read 9070 times)

old34

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INCOME Tax Rates - Eff. 11/09/01
« on: July 02, 2011, 11:04:10 AM »
China has just passed a new set of INCOME tax rates. Note, this is separate from the Social Insurance Tax which is being discussed elsewhere here:
http://raoulschinasaloon.com/index.php?topic=6564

You can read more about the changes and see the old vs. new tax rates and tax brackets here:
http://www.dezshira.com/updates/2011/07/npc-passes-iit-revisions-lifts-tax-exemption-threshold-to-rmb3500.html/

Some key points:

1. The changes take effect September 1, 2011.

2. Though they raised the initial tax exemption for Chinese citizens from 2000/mo. to 3500/mo., they specifically kept the exemption for foreigners at the current 4800/mo..

3. They widened the brackets at the low end, so the 20% rate doesn't kick in until 4500 TAXABLE income (which is 9300 salary taking into account the 4800 exemption.

4. In most cases, your income taxes should go down; however,

5. None of this takes into account the Social Insurance tax which will now be collected on foreigner's pay. Rates for that vary by region and city so.........

Some time ago I found a spreadsheet online for calculating China Income Tax. I took a few minutes yesterday to revise it based on the new brackets and rates. It consists of two worksheets, one for the old rates and one for the new so you can compare the effect of the new rules on your situation. I'm attaching it here for your use. The link to the original is contained in the worksheet, I added the new one myself.

Also, FWIW, there's a handy online calculator at:
http://chinajobline.com/index.php/tax-calculator.html

Currently, it's based on the old rates/brackets (you can check the attached worksheet against it), but perhaps the author will update it.

Knowledge is knowing that a tomato is a fruit; wisdom is knowing not to put it in a fruit salad. - B. O'Driscoll.
TIC is knowing that, in China, your fruit salad WILL come with cherry tomatoes AND all slathered in mayo. - old34.

xwarrior

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #1 on: July 02, 2011, 11:21:11 AM »
Great work old34
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old34

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #2 on: July 02, 2011, 11:30:26 AM »
If you downloaded and looked at the spreadsheet I attached to the previous message, you'll see a box there for "Tax Reimbursable Deduction." Previously, I just ignored the box and left it blank, not knowing what it was for. I was sure it didn't apply to me.

For the last few years, the tax withheld from my salary didn't match what I thought the tax should be based upon (1) doing the calculation by hand, (2) using the online calculator, or (3) using the spreadsheet. All 3 agreed on the amount, but my school deducted about 35 RMB LESS than it should have. Or so I thought. I never said anything because I didn't want them to suddenly say, oh yes, you're right, we're going to take out 35x36 months to make up for it from your next pay. So I let sleeping dogs lie.

Just last month, I stumbled across an interesting article about how to legally pay less income tax if you are a foreigner.

Quote
he 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.

The full article is here:
http://www.startinchina.com/shenzhen/life/individual_income_tax_china.html

It's pretty heavy reading and it still didn't click as applicable to my situation, and in any event, as the article states, it needs to be done through your employer and probably most schools will have no idea what this is about.

Then, when I was revising the spreadsheet yesterday, it suddenly clicked. We are given an ID card here and it's used for opening the door to the apartments. In addition  the school gives us a 200 RMB monthly allowance on our "teacher's card" which we can use by swiping it in the cafeteria. It also works in the on-campus grocery stores. I used to think, "well this should be taxable", but that would have meant the school should have withheld even more taxes. I looked at that box again "Tax Reimburseable Deduction" and then remembered the article I had read. I plugged in that 200 payment in the box and, what do you know, the tax matched exactly what the school had been doing all along. For once, they had done something right. What's really bizarre here is that they give me 200/month and not only is it NOT taxable, but it creates an additional 35 RMB deduction from my regular tax.

Go read the article (slowly) and you'll understand why. And it might apply to you, too, if your situation is similar to mine. But the big IF is trying to get your school's accountant's head around the concept since, again, it requires your employer to handle it.
Knowledge is knowing that a tomato is a fruit; wisdom is knowing not to put it in a fruit salad. - B. O'Driscoll.
TIC is knowing that, in China, your fruit salad WILL come with cherry tomatoes AND all slathered in mayo. - old34.

old34

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #3 on: September 20, 2011, 12:50:46 AM »

1. The changes take effect September 1, 2011.
.....
4. In most cases, your income taxes should go down; ....

Also, FWIW, there's a handy online calculator at:
http://chinajobline.com/index.php/tax-calculator.html

Currently, it's based on the old rates/brackets (you can check the attached worksheet against it), but perhaps the author will update it.


Is it OK to quote myself?

Anyway, I got my first pay yesterday after the new income tax law took effect September 1 and, as predicted, my withheld income tax went DOWN by 80/month. Woohoo! An extra 80 RMB in pocket. But that may soon be offset by the new Social Insurance tax of which I have heard nothing yet from the school.

Oh, and that tax calculator at ChinaJobLine linked above has not been updated.

P.S. Can this whole thread be moved over to the forum on Visas and Taxes please.
Knowledge is knowing that a tomato is a fruit; wisdom is knowing not to put it in a fruit salad. - B. O'Driscoll.
TIC is knowing that, in China, your fruit salad WILL come with cherry tomatoes AND all slathered in mayo. - old34.

Nolefan

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #4 on: September 20, 2011, 04:35:47 AM »
What most people are forgetting is that these new tax changes are gonna make it a lot more expensive for companies to hire foreigners from now on when you take into account their comparatively higher salaries... Employers are not liable for 38% of the value of the salary in contributions to social security, health and retirement benefits. On an average salary of 8k per month, a company will now have to pay about 3K extra .... tough times ahead!
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rollerboogie

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #5 on: September 24, 2011, 04:10:18 AM »
On an average salary of 8k per month, a company will now have to pay about 3K extra .... tough times ahead!

In the case of laowai working for unscrupulous universities; I guess that means that one of the higher ups pocketing a few thousand rmb from salaries the provincial government and-or institution have budgeted per foreign teacher: they will feel a pinch. Of course it could continue to play out with the school being short of one teacher once a contract expires so the cadre can continue to keep his skim going on for what would have been his take on the salaries for four teachers while staffing only three.

I work for a foreign concern I don't think these taxes are going to have an effect on me. My friends working directly for local employers are deeply concerned about this tax and the general impression I'm getting is that their employers are still trying to find a solution to this tax. Tough times ahead, for certain.

fox

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #6 on: September 24, 2011, 05:36:06 AM »
seems a fairly straight forward way of dealing with this to me.
If employed as a teacher then the school needs to include this increase in payment to the parents in annual fees. If parents dont want to accept then the establishment cuts down on foreign teachers or gives the option for their kids not to have those classes.
Job done. Bye bye to some teachers. for the private paying schools i dont see this being a huge issue. for the state run ones then perhaps it may have an effect. For the training centres then same thing applies - increase costs = increase fees.  What i find a little strange is how the rate per hour hasn't changed so much here in the last five years. still on about 100rmb for a 40minute class.

One thing that does surprise me though is how stubborn some places are not to offer more money. Just seems like bad business to me. Pay peanuts and get monkeys is a bit harsh. but when there are other opportunities for foreigners the market has got to be competitive to attract those with the interest and skills to do a reasonable job.
regard man as a mine rich in gems of inestimable value.

fox

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #7 on: September 24, 2011, 05:43:07 AM »
i have yet to read any details about amounts paid in pensions, and what sort of health care we can expect to get if we opt for this scheme.

I want to see scenarios of if you paid in for 5 years you would get blah blah blah. etc etc.
regard man as a mine rich in gems of inestimable value.

Crippler

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #8 on: September 24, 2011, 07:28:53 AM »
I doubt that it will voluntary. However I do think, if enacted, it will increase the illegal job opportunities as translation centers will seek even more part time, off the clock, workers..

Nolefan

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #9 on: September 24, 2011, 11:15:58 AM »
for universities, it might not be a big deal.. they are mostly state run at the end of the day.

From an SME perspective, it's quite taxing and hits the bottom line: an added 3K or more per foreign employee represents the salary of a local hire and depending on the number of foreigners working for you, it will cut into the business end of things. I happen to work for an SME with an unusually high number of laowais and trust you me that the boss ain't happy about paying an extra 20K/month or more

alors régressons fatalement, eternellement. Des débutants, avec la peur comme exutoire à l'ignorance et Alzheimer en prof d'histoire de nos enfances!
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El Macho

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #10 on: October 04, 2011, 12:39:51 PM »
Does anyone have a link to these regulations in Chinese? Having seen this today, I think that I am going to "get" to go in and fight with my uni after the holiday…they withheld too much in September.

becster79

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #11 on: October 10, 2011, 01:21:38 AM »
Good grief! Earnet almost 13,000rmb last month and paid just over 1000 in TAX- I'm almost propping up the city of Shenzhen!  aoaoaoaoao llllllllll eeeeeeeeee
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James the Brit

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #12 on: October 10, 2011, 01:39:23 AM »
That's 7%. You'd be lucky to pay that anywhere else.

xwarrior

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #13 on: January 20, 2012, 01:31:19 PM »
Dezan Shira & Associates through 'China Briefing' seem to be up with the play on this topic:

Quote
China Expat Tax Filing and Declarations for 2011 Income

Posted on January 16, 2012 by China BriefingJan. 16

– Individuals residing in China are subject to individual income tax (IIT) and expatriates who are employed by a foreign-invested enterprise in China are liable for IIT from the first day they arrive in China.

IIT is normally withheld from wages or salaries by employers and paid to the tax authorities on a monthly basis (within 15 days of the end of each month). At the end of the year, an annual IIT declaration should be submitted to tax authorities within three months of the end of the previous calendar year (i.e., between January 1, 2012 and March 31, 2012 for the 2011 calendar year). Penalties for late filing can be up to five times the amount that was due.

Annual IIT declarations should be filed for taxpayers who are subject to IIT in China and meet at least one of the following five conditions:
1.   Have an annual income of more than RMB120,000
2.   Derive income from two or more places inside the People’s Republic of China
3.   Derive income from sources outside the People’s Republic of China
4.   Received taxable income for which there is no withholding agent
5.   Other conditions regulated by the State Council

What is considered annual income?
   Wages and salaries
   Income from individually-owned industrial and commercial households
   Income from subcontracting or subleasing
   Remuneration for labor services
   Author’s remuneration
   Incomes from royalties
   Incomes from interests, stocks dividends and bonuses
   Incomes from lease, transfer of property
   Incidental incomes

How does IIT apply to expatriate income?
If an individual is paid by a China-based entity, any income derived from working in China will be taxable.
For non-China sourced income or income paid by overseas employers, tax liabilities for foreigners generally depend on the period of time an individual spends in China.
Individuals who spend less than 90 days (or 183 days for residents of countries that have signed a double taxation treaty with China) in one calendar year in China are exempt from IIT if the employment income is paid by an overseas entity.
Individuals who stay in China for more than 90 (183) days, but less than a year, are subject to personal income tax on their employment income derived from work performed in China – regardless of which entity is paying.
Residing in China for one calendar year means that, in a calendar year, temporary absences from China are less than 30 days continuously or 90 days altogether.

IIT applicability timeline
Individuals who reside in China for more than one year, but less than five years, are subject to personal income tax on both China-sourced and foreign-sourced income borne by a China-based entity. Foreign individuals who reside in China for more than five years are taxed on their worldwide income.
After an individual resides in China for five years, in the sixth year, if the individual resides in China for less than a year, the five year period is reset and the “90 (183) day rule” applies again.

Senior management
The 90 (183) day foreign employment exemption rule does not apply if the employee in question holds a senior management position in China.
These individuals are liable to individual income tax regardless of the number of days they reside in China during a calendar year.
In general, senior management positions include:
   Director
   Chief executive officer
   General manager
   Vice president
   Chief representative
   Individuals that hold positions in specific professional fields, such as chief engineer or chief financial officer
   Certain individuals who do not hold a title such as manager but carry similar responsibilities or have a great influence on business operations or decisions
For people holding senior management positions, their director’s fee or salaries paid by domestic employers regardless of whether it is China or non-China sourced is subject to IIT in China.

Tax rates
Income from wages and salaries is taxed according to progressive rates, ranging from 3 percent to 45 percent of monthly taxable income.
Monthly taxable income is calculated after a standard monthly deduction of RMB3,500 for local employees. For foreign individuals working in China (including residents of Hong Kong, Taiwan and Macau), the standard monthly deduction is RMB4,800.
Money paid into Chinese social insurance can also be added to your pretax deduction.
   Monthly Taxable Income = Monthly Income – RMB4,800
   Tax Payable = Taxable Income x Applicable Tax Rate – Quick Calculation Deduction

IIT calculation for monthly salary
When calculating their IIT amount, foreign expatriates need to apportion their total taxable income based on the income source and time spent in and outside of China. The specific formulae are listed in the accompanying table:

(Table is attached - click on to make larger)

Employment benefits
For IIT purposes, “taxable income” refers to “wages, salaries, bonuses, year-end bonus, profit shares, allowances or subsidies or other income related to job or employment.”
Certain employment benefits for foreign individuals could be specifically treated as not being taxable under the IIT law if certain criteria can be met. These include (with supporting invoices where applicable):
   Employee housing costs
   Reasonable home leave fares of two trips per year for the employee
   Reasonable employee relocation and moving costs
   Reasonable reimbursement of certain meals, laundry, language training costs and children’s education expenses in China
   Any cash allowance paid to cover expected work-related expenditures (such as an entertaining or travel allowance) will be fully taxable to an employee
IIT may be reduced by reimbursing specific work-related expenses incurred by an employee (which may include entertainment, health or social club fees, local travel, newspapers and journals, telephone costs, etc.) instead of paying an allowance.

Non-employment income
Non-employment income is taxed at rates generally ranging from 5 percent to 35 percent, depending on the income source.
Proprietors; contracting and leasing
Operating profit of individual industrialists and merchants’ production and business operations or from the contracting or leasing of operations of enterprises and institutions is subject to tax at progressive rates ranging from 5 percent to 35 percent. The 35 percent marginal rate applies to annual taxable income (gross revenue less allowable costs, expenses and losses) over RMB100,000.

Income of authors
Flat rate of 20 percent, applied to 70 percent of gross.
Compensation for personal services
Taxable at 20 percent if the taxable income (after allowable deductions) from a single payment does not exceed RMB20,000; 30 percent for the portion over RMB20,000 but not exceeding RMB50,000; and 40 percent for the portion exceeding RMB50,000.
Royalties, interest, dividends, leases on or assignment of property, other income
Flat rate of 20 percent.

Deductions
No deduction is allowed against income from interest, dividends, bonuses or other income. Deductions are allowed from other sources of income, including:
Contracting and leasing of operations of enterprises and institutions
Necessary expenses are deductible.
A deduction of RMB800 is allowed if the income received in a single payment is less than RMB4,000. If the income received in a single payment is more than RMB4,000, a 20 percent deduction is allowed.

Property transfers
Original cost plus reasonable expenses are deductible.


http://www.china-briefing.com/news/2012/01/16/china-expat-tax-filing-and-declarations-for-2011-income.html
Compensation for personal services, royalties, or leases on property
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old34

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Re: INCOME Tax Rates - Eff. 11/09/01
« Reply #14 on: January 20, 2012, 02:11:01 PM »
No different than what I posted at the top of this thread months ago. Plus I included an XLS there. Go back and have a look.
Knowledge is knowing that a tomato is a fruit; wisdom is knowing not to put it in a fruit salad. - B. O'Driscoll.
TIC is knowing that, in China, your fruit salad WILL come with cherry tomatoes AND all slathered in mayo. - old34.