A Guide to Expat Tax & Social Security in China 2014
If you just want to know how much of your salary will be left after paying for tax and social security then head to the China budget. It’ll calculate it all for you automatically.
However if you’ve got questions about how it all works, whether or not you have to pay for social security, how tax works in China and so forth then read on.
If you’re unfamiliar with how tax generally works as an expat, then quickly go and read this expat tax primer then come back.
Ok brilliant now we’re up to speed, let’s take a look at it all.
Do you have to pay tax in China
As mentioned in the primer, you nearly always have to pay tax in the country you move to and China is no exception, you'll have to pay income tax in China. The only slightly "simple" way of avoiding it is below, but for 95% of people reading this, you'll be paying tax. (Well unless you don't earn enough, also covered below.)
Hopefully you know whether or not you need to pay tax in your home country and therefore if you're unfortunate enough to be double taxed:
Here's a list of all the double tax treaties China currently has with other countries. Some countries may have multiple treaties listed, in this case the original treaty has been revised. If your home country isn't on this list there's unfortunately no way to avoid double tax. Click here to check for your country.
One possible case for avoiding tax completely
There is one possible (and not particularly complicated) case where you might not have pay tax in China described below: (There might be other more complicated cases)
If your employer is an overseas employer (i.e. a big multinational company like Wall Street English) there’s a possibility you won’t have to pay tax if you spend less than 90 days (183 under a tax treaty) in a calendar year.
So if you arrive in August and leave in June, or just come over for a summer camp you may be able to avoid tax completely in China. However we’re getting into slightly more complex stuff here and it’ll depend a lot on how your parent company handles its taxes and employees.
If you think this might apply to you a. read more about it here (page 2, halfway down). And b. talk to your companies HR department because if it does apply to you, then they’ll almost certainly have dealt with it before and be able to give you accurate advice. But 95% of the time you’ll be paying tax.
Calculating Tax & Paying Tax in China (and a Tax Calculator)
Thankfully after all of that mess, calculating tax and working out how much you’ll be paid is actually quite simple.
Tax in China is calculated per month so we start with our monthly salary, take away a flat 4800 expat deduction, the two deductions we mention below and then calculate tax on what’s left over using the following progressive tax brackets (see table below).
There are two notable tax exemptions, rent and social security. We'll talk more about both below, for now we'll just mention that to deduct rent you'll need a fapiao to prove you've paid it (see the last section) and you may or may not end up paying social security (see below).
|1 – 1,500||3%|
|1,501 – 4,500||10%|
|4,501 – 9,000||20%|
|9,001 – 35,000||25%|
|35,001 – 55,000||30%|
|55,001 – 80,000||35%|
Now we'll go through an example calculation, if you just want a China tax calculator you can use our China budget. Put in your salary and it'll give you a tax breakdown (you can ignore the rest of the budget stuff).
It's quite simplified, it only takes into account income tax and the only two deductions it'll calculate are rent and social security however for basic calculations it's fine.
An example tax calculation
For this example we're a teacher who earns 8,800 RMB a month. We take off the 4,800 deduction and get left with 4,000.
Then we'll use the table above to split our remaining 4000. 1,500 goes into bracket 1 and 2,500 goes into bracket 2. We'll pay:
2500*(0.1) = 250
So we pay 295 RMB in tax.
Now let's suppose we're also paying rent and social security. Our rent is 2000RMB a month and our social security is 10% of our salary before tax.
So we take 8,800RMB and remove 10% and 2000 RMB. (Because these are both tax exempt, we remove them before calculating tax).
Now we do the same calculation as before:
1500*0.03 = 45
420*0.1 = 42
So we're only paying 87 RMB tax a month.
Paying taxes in China is also very simple. A lot like back home your employer should calculate it and take it out of your salary without you even having to see it (it's the same with social security). This calculation is useful because it lets you see how much you'll earn and make sure your tax is calculated correctly.
Social Security in China
Unfortunately this is a little less clear cut than taxes.
China has a social security system, which splits into five areas:
- Medical Care
- Work Related Injury
- Maternity Insurance
Foreigners are also now formally required to participate in it. And here we run into problems.
That’s the official line, but it doesn’t seem to have been implemented like that. There’s an excellent article here which covers the change, but in news articles and reports who’ve followed up on it several years later, like the following one on China.org.cn give mixed messages.
The article which was written back in 2012 (this was roughly a year on from the policy being created), quote the government proudly talking about how nearly half of the expats in China have signed up. Wait, wasn’t it mandatory?
The whole thing is fairly confusing because although it’s described as mandatory there are no punishments for companies who don’t sign up. And unfortunately there still seems to be no official and strictly implemented answer.
It’ll come down to individual cases, has your province has chosen to implement it and whether or not your company has decided to sign up its employee’s.
It may or may not be mandatory. Isn’t that useful?
How much does Chinese social security cost?
Roughly around 10-11% of your income before tax.
The rates for social security are set at a provincial level and so this will vary depending on where you are.
The total cost of social security to your employer is actually a lot higher than 10-11%, most is paid by your employer and then the remaining 10-11% is paid for by you. It does have a cap although as a teacher you’re unlikely to hit the cap to begin with.
Should you sign up for China’s social security?
Most of the time, the answer is going to be no.
Of the five areas you pay for, you’re likely to only use two (medical care and work related injury) and because the standard of medical care in China is quite low (compared to many western countries) most people come with insurance from home which will cover the same things.
Some countries have social security treaties which allow you to do things like take the money you paid into your pension in one country and take it back home. In Japan signing up for social security is a benefit for many people because they can withdraw it as a lump sum when they leave and because of their employer doubling their payments they make a reasonable amount.
Unfortunately the only pension treaties China currently holds are with Germany and South Korea and so for most people it’ll be impossible to claim your pension back at the end. Unemployment insurance is of course pointless because if you get fired, you lose your visa and have to leave the country.
So no it's not normally worth taking social security if it's an option.
Chinese Rental Tax & Fapiao’s
The other tax you might run into is the 5% real estate tax (or the foreigner only rental tax).
It’s a tax that every Chinese landlord should have to pay on their rental income. In practice many landlords in China don’t declare the income as rent and avoid paying the tax.
While this is possible with Chinese tenants, landlords run into problems with foreign tenants.
If you skip to the accommodation section, you’ll notice as the last point that you have to register within 24 hours at your local police station after securing your apartment.
When you do this the police require your lease and may also ask for your real estate tax invoice (a fapiao) as proof of you living there. This is obviously a little bit of a problem if your landlord is trying to dodge the tax.
Sidenote: Fapiao is an invoice, but they’re printed, distributed and administered by the tax authorities. It’s the ultimate proof of purchase or payment in China and is very useful, if for example you want to claim costs back. If you’re looking for more information this is a far more lengthy explanation.
Rather than explain this to you, the landlord may just call it a foreigner only rental tax, but it’s still the same thing. Either way you’ll end up paying it because if the landlord doesn’t take a foreigner, he/she can avoid it completely.
It’s a 5% tax and you usually have to pay it upfront for the total length of your lease. I.e. it might be 5% of a whole years rental costs.
Having to pay this 5% extra is irritating, but having this fapiao does have a bonus: accommodation in China is tax deductible for expats and this fapiao is the receipt you’ll need to allow your employer to make it tax exempt.
This is the process getting a fapiao will follow:
- You head to the police station to register and they only require your passport and your lease.
- Your registering is done and your landlord has avoided paying tax. If you want the fapiao in order to claim your accommodation as tax free then you’ll need to ask your landlord and almost certainly have to pay for it.
- Your landlord should hopefully get the fapiao for you, however if they refuse to it is possible to get it yourself. The following article is a small starting point..
- Your local police station requires your passport, lease and fapiao to register.
- In that case you’ll need your landlord with you to provide it and you’ll want a copy so your employer can claim back rent.
- There’s an excellent TheBJReviewer which covers how you can avoid the pitfalls of this process here.
Here's a really standard tax disclaimer: We're not tax lawyers, this isn't official tax advice. You're responsible for what you do, if you're unsure of anything you'll need to talk to a proper tax lawyer and all that good stuff. I'm sure you knew all this anyway.