Executive contacts
Norman Yu
Maureen Chio
Eliona Zhang
Immigration contacts
Ben Fan
Sally Yu
+86 (21) 2228-2287
Fax: +86 (21) 2228-0287
Email: norman.yu@cn.ey.com
+86 (21) 2228-2398
Fax: +86 (21) 2228-0236
Email: maureen.chio@cn.ey.com
+86 (21) 2228-4606
Fax: +86 (21) 2228-0924
Email: eliona.zhang@cn.ey.com
+86 (21) 2228-2257
Fax: +86 (21) 2228-0024
Email: ben.fan@cn.ey.com
+86 (21) 2228-5805 (resident in Shanghai)
Shenzhen
EY
21/F, China Resources Building No. 5001 Shennan Dong Road Shenzhen China 518001
Executive contact
Sam Pang
Immigration contacts
Ben Fan
Email: sally.m.yu@cn.ey.com
+8
+86 (755) 2502-8160
Fax: +86 (755) 2502-6160
Email: sam.pang@cn.ey.com
+86 (21) 2228-2257 (resident in Shanghai)
Fax: +86 (21) 2228-0024
Email: ben.fan@cn.ey.com
Sally Yu
+86 (21) 2228-5805 (resident in Shanghai)
Email: sally.m.yu@cn.ey.com
Tianjin
EY
Unit 1704 17/F
Metropolitan Tower No. 183 Nanjing Road Heping District Tianjin China 300051
Executive contact April Liao
Immigration contacts
Ben Fan
+86 (22) 5819-4700
Fax: +86 (22) 8319-5128
Email: april.liao@cn.ey.com
+86 (21) 2228-2257 (resident in Shanghai)
Fax: +86 (21) 2228-0024
Email: ben.fan@cn.ey.com
+8
Sally Yu
+86 (21) 2228-5805 (resident in Shanghai)
Email: sally.m.yu@cn.ey.com
This chapter relates to the mainland China tax jurisdiction, referred to as “China” within this chapter.
A. Income tax
Who is liable. Chinese tax residents are generally subject to tax on their China-source and non-China-source income. Nonresidents are subject to tax on their China-source income only.
Effective from 1 January 2019, Chinese tax residents include the following persons:
• Individuals who have their domicile in China
• Individuals who do not have their domicile in China, but reside in China for 183 days or more in a tax year
For employment income, non-China-domiciled individuals who are Chinese tax residents for no more than six consecutive years are subject to China individual income tax (IIT) on income earned from services rendered in China and on income earned from services rendered outside China but paid or borne by the individual’s China employer.
China-domiciled individuals are subject to China IIT on their worldwide income. Non-China-domiciled individuals who have been a Chinese tax resident for more than six consecutive years and who had no absence from China for more than 30 consecutive days in any of the six consecutive years are subject to China IIT on their worldwide income, regardless of the mode of payment and place of payment of the income.
Income subject to tax. The taxation of various types of income that are common to foreign expatriates is described below. For Chinese tax residents, employment income, labor services income, author’s remuneration and royalties should be aggregated in a tax year as consolidated income.
Employment income. The types of taxable compensation under the China IIT law include, but are not limited to, wages and salaries, foreign service or hardship allowances, cost of living and automobile allowances, tax reimbursements, bonuses and equity compensation. The form of the individual income may be cash, physical objects, securities and economic interests in any other form.
Nontaxable compensation for expatriate employees includes housing rental, home leave (limited to twice a year for employee only), relocation or moving, meals and laundry, language training and children’s education in China, provided such items are paid directly or reimbursed by the employer on the presentation of official tax invoices. The non-taxable treatment of housing rental, language training and children’s education may not be available from January 2028.
The annual bonus can be treated as a separate one-month salary for tax purposes. Effective from 1 January 2019, for Chinese tax residents, the applicable marginal tax rate can be determined based on 1/12 of the annual bonus, while for nonresidents, the annual bonus or several-month bonus may be divided evenly into six installments and each installment is taxed using the monthly tax rates. This calculation method can be used by each individual only once in a calendar year. For Chinese tax residents, bonuses other than the annual bonus must be treated as a part of monthly salary income and are taxed based on the aggregated amount of
nonresidents, the taxable income can be divided into six equal installments and each installment is taxed using the monthly tax rates (this treatment is referred to below as the “favorable tax treatment”). This favorable tax treatment is applied only when a tax registration of the stock option plan has been performed with the in-charge tax bureau. In addition, all exercises of stock options in the same calendar year must be aggregated for the calculation of China IIT. For Chinese tax residents, the favorable tax treatment on the taxable income may not be available from January 2028.
The above favorable tax treatment applies to employees of publicly listed companies (including branches) and their subsidiaries that are at least 30% owned by the listed companies. For companies indirectly held by listed companies, the ownership percentage is determined by multiplying the respective shareholder percentage at each level of ownership. If a listed company holds over 50% of the first-tier subsidiary’s shares, the ownership percentage is calculated as 100%.
Effective from 1 September 2016, if equity incentives (that is, stock options, restricted stocks and stock rewards) granted to employees by unlisted domestic companies meet certain criteria, an employee of the domestic company can defer taxation until the equity is sold.
If the above types of favorable tax treatment do not apply, the taxable income derived from the stock option is aggregated with regular taxable monthly employment income in the month of exercise and subject to the marginal rate of the employee.
Deductions
Deductible expenses A Chinese tax resident can enjoy a CNY60,000 deduction each year in computing his or her net taxable consolidated income, which is an aggregate of employment income, labor services income, author’s remuneration and royalties. A nonresident foreign employee can enjoy a deduction of CNY5,000 per month on his or her employment income. Qualified charitable donations are also deductible.
Employees, self-employed individuals and individual partners of partnerships can claim a deduction for their contributions to qualified commercial health insurance schemes from taxable income. The deduction is capped at CNY2,400 per year (that is, CNY200 per month).
An individual’s contributions to a certain qualified private pension scheme through personal pension fund accounts can be deducted from the taxable consolidated income or operational income. The deduction is based on the actual contribution amount and is capped at CNY12,000 per year. The policy was effective from 1 January 2022 in pilot cities.
For foreign expatriates, overseas social security contributions made by individuals are not deductible.
If an employer is responsible for paying the employee’s China income tax liabilities, the employee’s taxable income is grossed up by the amount of the payment. Any hypothetical tax, which is an amount withheld by the employer as full or partial compensation for satisfying the employee’s China tax liability, is normally
allowed as a deduction in computing the employee’s net taxable income.
Personal deductions and allowances. Chinese tax residents are eligible for the following specific additional tax deductions (the amounts are effective from 1 January 2023), if applicable.
Specific additional tax deductions CNY
Children’s education 2,000 per month per qualified child
Continued education
Academic education 400 per month
Continued education for skilled professional or technical personnel 3,600 per year
Medical expenses for serious illness Expense above 15,000, capped at 80,000 per year
Housing loan interest 1,000 per month
Housing rent 800/1,100/1,500 per month, depending on the category of the city
Caring for the elderly
Single child 3,000 per month
Non-single child Not exceeding 1,500 per month
Caring for a baby under three years old 2,000 per month per qualified child
However, foreign employees who are Chinese tax residents cannot enjoy the nontaxable benefits, such as housing and children’s education, and the above specific additional tax deductions at the same time. They can elect to only enjoy one of them. The nontaxable benefits of housing, children’s education and language training may be unavailable to foreign employees from January 2028; thereafter, Chinese tax resident foreign employees would only be able to enjoy the children’s education, housing rent or housing loan interest, and continued education deductions mentioned above. At the time of writing, no further instruction had been issued by the tax authority.
On the approval of the local tax bureau, employees who do not have their domicile in China and who have job responsibilities both within and outside China may be allowed to report income on a time-apportionment basis. The employment income may be prorated based on the number of days the employee stays in China. To qualify, an employee needs to provide supporting documentation.
No distinction is made between married and single taxpayers.
Business deductions. Independent personal services income and royalties can have a deduction of 20% of income.
Rental or leasing income can have a deduction of CNY800 or 20% of income, whichever is higher.
A taxpayer may claim a deduction for reasonable repair fees from rental income, limited to CNY800 per month, on the presentation of official invoices and the approval of the local tax authorities in charge.
took effect on 1 July 2011, foreign nationals working in China must also participate in the China social security system. The Ministry of Human Resources and Social Security in China released interim measures for the participation of foreign nationals employed in China in China social insurances on 6 September 2011. These interim measures took effect on 15 October 2011. Under the interim measures, foreigners who have obtained a China Permanent Residence Certificate, Work Permit, Foreign Expert Certificate or Certificate of Permanent Foreign Correspondent are required to contribute to Chinese social security schemes. They must participate in basic pension schemes, basic medical insurance, work-related injury insurance, maternity insurance and unemployment insurance. Chinese employers are required to perform social security registration for foreign employees within 30 days after the employees obtain a work permit and withhold the required contributions on a monthly basis.
Hong Kong, Macau and Taiwan residents working in China are allowed to participate in the China housing provident fund, effective from 28 November 2017. They are required to participate in the China social security system, effective from 1 January 2020.
Special rules apply to foreigners from certain jurisdictions or territories. Under the totalization agreements with Germany and Korea (South), if German and Korean employees do not contribute to their home jurisdiction’s pension and unemployment insurance during their employment in China, they should contribute to pension and unemployment insurance in China. A totalization agreement with Denmark took effect on 14 May 2014. Under the totalization agreement, Danish employees who are required to participate in Danish pension schemes can be exempt from the contributions to pension insurance in China. Also, under rules that took effect on 1 October 2005, employees from Hong Kong, Macau and Taiwan who have entered into local labor contracts in China can contribute into the China social security system.
Social security tax rates vary among cities. Employers and employees are subject to social security taxes at an average rate of 25% and 11% of gross income, respectively. For this purpose, the amount of gross income is capped at three times the average salary in the city for the preceding year as published by the local government.
China has entered into totalization agreements with the following jurisdictions.
Canada Germany Netherlands
Demark Japan Serbia
Finland Korea (South) Spain
France* Luxembourg Switzerland
* The totalization agreement with France had not yet entered into force as of the time of writing.
D. Tax filing and payment procedures
The tax year is the calendar year. Spouses are taxed separately, not jointly, on all types of income.
Foreigners must register with the local tax bureau or, if individuals are engaged in offshore oil and gas exploration activities, with the local offshore oil tax bureau.
Foreigners subject to China IIT may need to complete a tax registration form and provide an employer’s certification stating the amount of their compensation, along with copies of relevant passport pages to verify their date of arrival.
Although the recipient of income is responsible for payment of income tax, it is generally collected through a withholding system under which the payer is the withholding agent.
A withholding agent must notify its supervising tax authorities of the basic personal details regarding all individuals to whom it has paid taxable income. Required personal details for payees include name, personal identification number, position, residential address, telephone number and correspondence address. Additional information may be required if the income recipients are not employees of the withholding agent, investors, equity owners, or nonresidents of China. However, payers of dividends and interest are required only to file a set of simplified information with respect to the recipients. The withholding agent must submit the above information in the month following the month of payment of taxable income to an individual, regardless of the availability of deductions or concessions that may be offset against the income. The withholding agent must also notify the tax authorities of any subsequent changes. If the withholding agent fails to withhold the tax and file the monthly tax returns with its governing local tax bureau for its employees and income recipients, the tax authorities may impose a penalty of 50% to 300% of the tax due on the withholding agent.
All taxpayers, including those earning China-source income but not covered by the withholding system, and employees who are paid outside China must file monthly income tax returns and pay the relevant tax to the local tax bureau. The returns must be filed within 15 days after month-end.
Chinese residents with foreign-source income must file annual reconciliation tax returns and pay tax due between 1 March to 30 June of the following year. Foreign taxes paid on this income are allowed as a tax credit, up to the amount of China IIT levied on the same income.
Individuals who are taxpayers are required to register and file annual reconciliation tax returns between 1 March to 30 June with a tax bureau in charge if any of the following circumstances apply:
• An individual receives consolidated income in two or more locations and the balance of annual consolidated income less specific tax deductions (that is, statutory social security and housing fund contributions by the individual) exceeds CNY60,000.
• An individual receives labor services income, author’s remuneration and royalties, and the balance of the annual consolidated income less specific tax deductions exceeds CNY60,000.
• The prepaid tax amount is less than the actual tax liability in a tax year.
• The individual needs to apply for a tax refund.
Late payment of tax is subject to a daily interest charge of 0.05%. A penalty of up to five times the amount of unpaid tax may be levied for tax evasion or refusal to pay tax.
G. Steps for obtaining visas
Foreign nationals who wish to enter China should apply for visas at a Chinese diplomatic mission or consulate or with other representatives in foreign jurisdictions authorized by the Ministry of Foreign Affairs. The following documents are required when applying for a visa:
• A valid passport or an equivalent certificate of identification. The passport must have a period of validity of at least six months before expiration and at least two blank visa pages left in it.
• A completed visa application form with one recent passportsize photograph.
• Other relevant documents that vary according to the type of visa for which the foreign national is applying. The following are the relevant documents:
— D: A permanent residence confirmation form, for which the applicant or an entrusted relative applies to the entry-andexit department of the public security bureau in the city or county where the applicant intends to reside
— Z: A work permit notification letter or a short-term work certificate (for short-term employment), for which the sponsor employer in China applies to the provincial or municipal Expert Bureau
— X: JW201 form or JW202 form (Application Form for Overseas Students to China) issued by the receiving unit or the relevant department in charge, Admission Notice and medical report for foreigners
— F: An invitation letter from the inviting unit or person
— M: A visa notification letter from an authorized unit (that is, a commercial or trade partner in China) or an invitation letter issued by a relevant entity or individual in China
— R: Special approval documents from the designated government authorities in China
— Q: An invitation letter from the family members together with supporting documents proving the relationship between the applicant and family members in China and permanent residency status of the family members in China
— S: An invitation letter from the family members together with supporting documents proving the relationship between the applicant and family members in China
— J: A visa notification letter issued by the Information Department of the Ministry of Foreign Affairs of China and an official letter issued by the media organization
— G: A valid visa for the jurisdiction (region) to which the applicant intends to travel next and an onward ticket with confirmed date and seat
— L: A certificate or letter issued by the receiving tour agency of China and a round trip ticket and hotel reservation
When applying for an entry visa, if a foreign national intends to take up permanent residence or stay in China on a long-term basis, he or she may be required to present a notarized medical report issued by a public health and medical unit designated by the Chinese embassy in the foreign national’s home jurisdiction or issued by any authorized health and medical unit in China. The medical report must remain valid for six months from the date of issuance. A non-criminal report issued by the police or public
security or judicial authorities from the foreign national’s home jurisdiction is also required for a permanent resident or long-term work authorization permit application in China, and this report needs to be authenticated by the Chinese embassy in the home jurisdiction.
Under the following special circumstances, an application for a visa may be made at any designated entry point authorized by the Ministry of Public Security (landing visa):
• The foreign person is invited, because of a late confirmation on the part of the Chinese party, to attend a trade fair in China.
• The foreign national is invited to submit a bid or to formally sign an economic or trade contract.
• The foreign national, pursuant to an agreement, visits China to conduct inspection of import or export products or for contract verification and acceptance.
• The foreign national is invited to perform equipment installation or to undertake emergency repairs.
• The foreign national is requested by a Chinese party to come to China for a settlement of claims.
• The foreign national is invited to visit China to provide scientific and technical consulting services.
• The foreign national is an additional or substitute member of a group that has already been issued visas.
• The foreign national comes to China to visit a seriously ill person or to arrange funeral matters.
• The foreign national is in direct transit but, for unavoidable reasons, cannot leave China within 24 hours.
• The foreign national is invited to China but is unable to apply in time to the aforementioned Chinese organizations abroad, and he or she holds a document issued by the designated authorities indicating he or she is approved to apply for a visa at the port of entry.
The landing visa application may be accepted in 30 provinces and in about 72 cities and 99 ports in China, including, among others, Beijing, Chengdu, Guangzhou, Shanghai, Shenzhen, Xiamen, Xi’an, Yantai and Zhuhai.
H. Visa exemptions
Citizens of Brunei Darussalam who enter China for tourist or business purposes, or to visit friends, need not apply for a China visa if their stay in China is less than 15 days beginning from the date of entry. The visa-free policy used to apply to Japan as well, but it had been suspended for four years since the COVID-19 pandemic. The suspension of the visa-free policy for Japanese nationals is expected to remain in place until further notice.
Citizens of Antigua, Barbuda, Georgia, Thailand and Singapore who enter China for tourist or business purposes, or to visit friends, need not apply for a China visa if their stay in China is less than 30 days beginning from the date of entry.
Citizens of Australia, Austria, Belgium, France, Germany, Hungary, Italy, Ireland, Luxembourg, Malaysia, the Netherlands, New Zealand, Poland, Spain and Switzerland who enter China for tourist or business purposes, or to visit friends, need not apply for a China visa if their stay in China is less than 15 days beginning
expect to work in China for less than 30 days can reside and work in China based on the valid period indicated on the work certificate and Single-Entry Z Visa.
Foreigners who will work in China for more than 30 days but less than 90 days should apply for a “90 days” work-type residence permit from the local Public Security Bureau.
K. Family and personal considerations
Family members. Family members of a working expatriate do not automatically receive the S visa and residence permit and must apply for it independently. These applications are completed after the expatriate obtains a work authorization in China or they are completed together with the expatriate’s visa and residence permit applications. Legalized relationship documents may be required in a dependent residence permit application, such as a marriage certificate for a spouse and a birth certificate for a child.
Subject to the decision of the local government and schools, children of working expatriates may be required to obtain student visas to attend schools in China.
Marital property regime. No community property or other similar marital property regime is in effect in China.
Forced heirship. Forced heirship rules do not apply in China.
Driver’s permits. China has driver’s license reciprocity with Belgium, France, Serbia and the United Arab Emirates. Foreign nationals from other jurisdictions may not drive legally in China with their home jurisdiction driver’s licenses, but they may take written exams and exchange their driver’s licenses for Chinese licenses.