Individual Income Tax Planning (IIT)
Individual Income Tax
LehmanBrown has long standing practical knowledge of tax servicing for individuals employed in foreign and domestic enterprises. We can help you achieve the most efficient way to structure your tax payments. We offer this service to anyone, whether you are a self-employed director of a new enterprise or an employee at a foreign multinational.
We also offer advice on methods for individual income tax filing and payment in a structured manner to avoid costly penalties. Tax planning and organization is essential to avoid uncertain disagreement with the local tax office, especially in China, where the tax system is relatively under-developed.
Individual Income Tax Compliance
According to the PRC individual tax laws, taxpayers are categorized into two categories: PRC-domiciled and Non-PRC domiciled individuals. Expatriates working in Mainland China could fall under either group. The individual income tax law (IIT) states that PRC-domiciled individuals are required to pay tax on income sourced from China and offshore. However, non-PRC domiciled individuals are only required to pay tax on income sourced from China.
Individual Income Tax Advisory
Foreign individuals residing in the PRC for less than one year are subject to individual income tax (IIT) on their PRC sourced income only. Remuneration from foreign employers to individuals working in the PRC is exempt from tax if the individual resides in the PRC for less than 90 days in a calendar year, provided that the remuneration is not borne or paid by an establishment in the PRC. This 90-day period may normally be extended to 183 days if the individual is entitled to protection under a relevant tax treaty/tax arrangement.
People working for foreign employers, under certain criteria, have the opportunity to reduce their IIT liability and be taxed based on the actual number of days living in the PRC. If the PRC is not their permanent home but they live in the PRC for a period between one to five years, with approval, they pay tax only on their PRC sourced income and non-PRC sourced income. The payment is borne by PRC establishments. After the five years the amount of tax charged will be based on their worldwide income for each full year residing in the PRC.
Expatriate and Local Staff IIT Planning
Individual income tax (IIT) is a form of tax that needs to be paid over your salary in China. This is done through the employer who should withhold the correct amount of tax before payment of the salary, to make it easier for staff. The tax levels in Shenzhen/China progressively increase from 3% to 45% (for the part of your salary over 80K RMB /month). Chinese nationals don’t have to pay tax over the first 3500RMB of their income and foreigners enjoy a tax-free limit of 4800RMB. In addition to the basic tax rate for each tax band, there are also many deductions that can maximize an individual’s tax efficiency.
LehmanBrown, with our intricate knowledge of the Chinese tax system even in these changing times, is ideally placed to provide you with the best IIT planning on all spectrums.
For more information on LehmanBrown’s Individual Tax Planning, please contact us at enquiries@lehmanbrown.com
