China individual income tax treatment depends on residence status, income type and the applicable deduction rules. This article explains key points for foreign employees and their employers.

Individuals who receive income taxable in China, including foreign nationals, should assess their obligations under the Individual Income Tax Law.

A person without a domicile in China is generally a resident individual for a tax year if they are present in China for 183 days or more during that calendar year; a person with a domicile may be resident without this day count. Treaty rules may affect specific income, but do not replace this domestic-law residence test.

The taxation of salary for an individual without a domicile depends on residence status, where work is performed, payment and applicable detailed rules or treaties; a foreign employer does not by itself remove a China tax obligation.

For resident individuals, comprehensive income is calculated on an annual basis after the RMB 60,000 basic deduction and any applicable statutory deductions. For a non-resident individual, the basic deduction for monthly wage and salary income is RMB 5,000.

The Bottom Line

Businesses should be aware of the scope of tax changes and the potential for closer regulatory scrutiny from authorities.

Employers should check payroll withholding and reporting against the employee's actual residence and income position.

The current rules give specific treatment to annual bonuses, qualifying foreign-employee allowances, deductions and residence duration. Each has its own conditions.

Current points to check include:

• Eligible resident individuals may elect separate taxation of a qualifying annual bonus or inclusion in comprehensive income under the policy in force through 31 December 2027.
• A qualifying foreign resident individual may elect specified tax-exempt allowances or special additional deductions, but not both for the same tax year; this allowance policy is in force through 31 December 2027.
• The applicable basic, special and special additional deductions depend on the individual's status and the statutory conditions.
• For a person without a domicile who is resident in the current year, the six-year rule for certain foreign-source income depends on the six preceding tax years and whether any single absence exceeded 30 days.

Please contact Hongda for any IIT related inquiries and changes to payroll policies to ensure your business can adjust accordingly.