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Local Staff Individual Income Tax

Individuals domiciled in China must pay tax in Chinas a PRC Tax Resident. A non-PRC tax resident is defined as an expat working in China, whose IIT rate is determined by applicability of the tax treaty and length of their stay in the PRC (People’s Republic of China) within a calendar year (or tax year). In addition, whether the payroll of the expatriate is borne or deemed as borne by a PRC entity and the position and nature of duties performed by the expatriate can affect the IIT rate.

PRC domiciled individuals (more than one full year residence) are subject to IIT (individual income tax) on income derived from services rendered both in China and outside China. The total income paid in or outside China for the month is apportioned for arriving at the taxable income for services rendered.

Generally speaking, tax returns are filed by an employer (Permanent China Establishment) on a monthly basis; individual income tax is withheld by employers for direct payment to the tax authorities. The following groups of individuals (A – E) are required to report their income directly to tax authorities for clearance:

  1. Annual total income more than RMB 120,000
  2. Income derived from two sources of employment or more
  3. Income derived from an overseas entity
  4. Without withholding agent (China establishment)
  5. Others as specified by the State of Admin.

These groups are required to file self-reporting returns for clearance irrespective of tax due already paid. However, non-PRC domiciled expatriates with less than one full year residence falling under group (a) are exempted from filing self-reporting tax returns.

As part of our Taxation portfolio, LehmanBrown can support our clients with the filing of tax for local staff.

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