Navigating the 2019 Tax Law for Foreigners in China (and How to Calculate Your Own)
On Aug 31, 2018, the Standing Committee of the National People’s Congress passed an amendment to the Individual Income Tax Law, which came into effect on Jan 1, 2019. These changes created confusion for both employers and workers seeking to recalibrate payscales and personal budgeting. Domestic and international factors motivated this policy amendment, ranging from the impact of an increasingly aging population, China’s rising cost of living, economic slowdown and trade tensions with the US. For the confused and nervous, here is a quick rundown of its key features.
Who does this new tax law affect?
First, taxpayers in China are sorted into one of two categories:
- Resident taxpayer: an individual who resides in China or who has spent 183 days or more of a tax year in China
- Nonresident taxpayer: an individual who doesn’t reside in China, but has spent less than 183 days in country
Next, it’s important to understand the way that a monthly tax rate is calculated. The basic formula is:
- Monthly taxable income x tax rate – quick deduction
These translate to the rates detailed below.
Tax Rates for Resident Taxpayers
| Tax Bracket | Amount of Annual Taxable Income | Tax Rate | Quick Deduction |
| 1 | Up to RMB 36,000 | 3% | RMB 0 |
| 2 | Over RMB 36,000 and under RMB 144,000 | 10% | RMB 2,520 |
| 3 | Over RMB 144,000 and under RMB 300,000 | 20% | RMB 16,920 |
| 4 | Over RMB 300,000 and under RMB 420,000 | 25% | RMB 31,920 |
| 5 | Over RMB 420,000 and under RMB 660,000 | 30% | RMB 52,920 |
| 6 | Over RMB 660,000 and under RMB 960,000 | 35% | RMB 85,920 |
| 7 | Over RMB 960,000 | 40% | RMB 181,920 |
Tax Rates for Non-resident Taxpayers
| Tax Bracket | Monthly Income | Tax Rate | Quick Deduction |
| 1 | Up to RMB 3,000 | 3% | 0 |
| 2 | Over RMB 3,000 and under RMB 12,000 | 10% | 210 |
| 3 | Over RMB 12,000 and under RMB 25,000 | 20% | 1,410 |
| 4 | Over RMB 25,000 and under RMB 35,000 | 25% | 2,660 |
| 5 | Over RMB 35,000 and under RMB 55,000 | 30% | 4,410 |
| 6 | Over RMB 55,000 and under RMB 80,000 | 35% | 7,160 |
| 7 | Over RMB 80,000 | 45% | 15,160 |
So, what is a quick deduction?
Under the amended law, resident taxpayers receive RMB 5,000 in standard monthly tax deductions with a variety of additional special deduction options. These include:
- Educational expenses
- Costs of housing (rent or interest on loans)
- Healthcare costs for serious illness
- Costs of elder care
These amendments give local authorities more leeway to enforce tax laws, in particular, to cut down on tax avoidance and combat fraud. Since its January announced implementation, it remains unclear how uniformly these measures will be carried out.
READ: 3 Simple Steps to Calculate Your New Salary Income Tax in China
Photo: expatica.com
