China taxes its citizens primarily through a progressive Individual Income Tax (IIT) system, which applies to both Chinese and foreign nationals residing in or deriving income from the country. This system features progressive rates ranging from 3 percent to 45 percent on comprehensive income.
Understanding China's Individual Income Tax (IIT)
The Individual Income Tax (IIT) is a key component of China's tax system, applicable to anyone earning income within its borders, regardless of nationality. This includes individuals who are residents for tax purposes or those with income sourced from China. The tax is levied on a "comprehensive income" basis, meaning various income types are grouped together for tax calculation.
Progressive Tax Rates
China employs a progressive tax system for individual income, which means that as an individual's income increases, a higher percentage of their income is subject to tax. The rates typically apply monthly for salaried income.
The table below outlines the current Individual Income Tax brackets for comprehensive income:
| Monthly Taxable Income (RMB) | Tax Rate (%) | Quick Deduction (RMB) |
|---|---|---|
| Not exceeding 3,000 | 3 | 0 |
| Over 3,000 to 12,000 | 10 | 210 |
| Over 12,000 to 25,000 | 20 | 1,410 |
| Over 25,000 to 35,000 | 25 | 2,660 |
| Over 35,000 to 55,000 | 30 | 4,410 |
| Over 55,000 to 80,000 | 35 | 7,160 |
| Over 80,000 | 45 | 15,160 |
Note: The taxable income is calculated after deducting standard allowances and eligible special additional deductions.
What Constitutes Comprehensive Income?
Comprehensive income subject to IIT generally includes:
- Wages and salaries: This is the most common form of income for most citizens.
- Remuneration for labor services: Income earned from providing professional services.
- Author's remuneration: Royalties and payments received by authors.
- Royalties: Income from the use of patents, trademarks, copyrights, and other proprietary rights.
Other types of income, such as income from business operations, capital gains, and property income, are also subject to IIT but may be taxed separately or under different calculation methods.
Deductions and Allowances
To ease the tax burden, China's IIT system allows for various deductions:
- Standard deduction: A fixed monthly deduction from comprehensive income before calculating tax.
- Special additional deductions: These are available for specific expenses and circumstances, including:
- Children's education
- Continuing education
- Housing loan interest
- Housing rent
- Support for the elderly
- Medical expenses for serious illnesses
These deductions aim to provide relief for common household expenditures, effectively reducing the overall taxable income.
For a more detailed understanding of China's tax system, including corporate and other indirect taxes, you can consult resources from major accounting firms like PwC's China Tax Guide (PDF link) or KPMG's China Tax publication.
