On January 1, 2019, China established a comprehensive and classified individual income tax system that is fairer and more reasonable than its predecessor. It has further clarified the definition of and criteria for "resident individual", adjusted and optimized the structure of tax rates, raised basic deduction levels for the income tax, set up special expense deductions, adjusted the tax reporting system, set up the credit mechanism, and introduced the anti-tax avoidance clause for individuals.

An individual who is domiciled in China, or an individual who is not domiciled in China but has resided in China for an aggregate of 183 days or more within a tax year, shall be regarded as a resident individual. Income received by a resident individual from within China or overseas shall be subject to individual income tax in accordance with laws. In addition, according to the Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China, for an individual who is not domiciled within the territory of China, if the person resides within Chinese territory for 183 days or more per year for less than six consecutive years, the person shall be exempted from individual income tax for incomes derived from outside the Chinese territory and paid by entities or individuals outside the Chinese territory after filing with the competent tax authorities; if an individual is absent from China for more than 30 days in any year in which he/she resides in China for 183 days or more, the consecutive years when he/she has resided in China for 183 days or more shall be counted anew.

An individual who is not domiciled in China and does not reside in China, or an individual who is not domiciled in China but has resided in China for less than an accumulated 183 days within a tax year, shall be regarded as a nonresident individual. Income received by a non-resident individual from within China shall be subject to individual income tax in accordance with laws. According to the Regulations for the Implementation of the Individual Income Tax Law of the People's Republic of China, for an individual who is not domiciled within the Chinese territory, if he/she has resided within China for no more than 90 days in a tax year, his/her income that is derived within the territory of China and paid by an employer outside the Chinese territory but not borne by the employer's institutions or establishments within the territory of China shall be exempted from individual income tax.

The individual income tax year begins on January 1 and ends on December 31 of the Gregorian calendar. For comprehensive income in excess of the specified amounts, seven-level progressive tax rates ranging from 3% to 45% shall apply; for income from business operation in excess of the specified amounts, five-level progressive tax rates ranging from 5% to 35% shall apply; for income from interest, dividends or bonuses, income from leasing of assets, income from transfer of assets, and incidental income, a flat tax rate of 20% shall apply. (A lower tax rate agreed upon or tax exemption under applicable tax treaties, if any, shall be enforced).

For foreign nationals, the following categories of income are temporarily exempted from the individual income tax: (1) dividends and bonuses obtained from foreign-invested enterprises; (2) wages and salaries that are paid to foreign experts in accordance with relevant regulations of China; (3) foreign persons who qualify as resident individuals may apply for tax exemptions on housing subsidies, language training fees, child education expenses, etc; or, they may opt to enjoy special expense deductions from the individual income tax from January 1, 2019, to December 31, 2021. Regarding item (3), once a foreign national chooses one or the other, he/she may not change that decision within the tax year. On December 31, 2021, the Announcement of the Ministry of Finance and the State Taxation Administration on Continuing the Implementation of Relevant Preferential Individual Income Tax Policies Including Allowances and Subsidies for Foreign Individuals (Announcement No. 43 [2021] of the Ministry of Finance and the State Taxation Administration) was released, stipulating that the validity period of preferential policies for foreign individuals such as allowances and subsidies will be extended to December 31, 2023.

Updated on May 20, 2023

Source: Foreign Investment Guide of the People's Republic of China (2022 Edition)