Tax exemptions and deduction for Foreigners in China

The Ministry of Finance (MOF) and the State Taxation Administration (STA) have jointly issued a Public Notice to provide further relief for qualified foreign individuals. According to the notice, eligible foreign individuals can choose to continue enjoying non-taxable allowances, such as housing allowances, language training allowances, and children's education allowances, instead of applying specific additional deductions for Individual Income Tax (IIT).

It is important to note that once a foreign tax resident individual makes a decision regarding their preference, they cannot change it within the same tax year. Therefore, we advise foreign individuals to carefully consider their options and make an informed decision.

This Public Notice will remain valid until 31 December 2027, providing a considerable period for eligible foreign individuals to benefit from the non-taxable allowances.

Today, we have summarized the relevant tax policies regarding tax exemptions and deduction for foreign individuals. Let's start from the types of taxes applicable to foreigners.

Types of Taxes Applicable to Foreigners

Individual Income Tax (IIT)

Tax rates and income brackets

The Individual Income Tax (IIT) in China applies to both Chinese residents and non-residents. The tax rates and income brackets for IIT are important considerations for foreigners. As of 2023, China utilizes a progressive tax system with several income brackets and corresponding tax rates. The tax rates range from 3% to 45%, with the higher rates applying to higher income levels. The income brackets are periodically adjusted by the Chinese government to reflect economic changes and inflation.

Foreigners need to be aware of the applicable tax rates and income brackets to ensure accurate tax calculation and compliance. Additionally, understanding the available exemptions, deductions, and reporting requirements for foreigners is crucial to managing individual income tax obligations effectively.

Tax exemptions and deductions for foreigners

Foreigners in China are eligible for certain tax exemptions and deductions under the Individual Income Tax (IIT) system. Common exemptions include allowances for specific types of income, such as certain subsidies, scholarships, and social welfare benefits. Additionally, certain deductions are available, such as expenses related to housing, education, healthcare, and social insurance.

Foreigners need to understand the specific exemptions and deductions they may be entitled to optimize their tax liability. Properly documenting and reporting these exemptions and deductions is crucial to ensure compliance with tax regulations and maximize tax savings for foreigners in China. Seeking professional advice or consulting the Chinese tax authorities can provide further guidance on the available exemptions and deductions.

Reporting and filing requirements

Foreigners in China are required to comply with reporting and filing requirements for the Individual Income Tax (IIT). It is essential to understand and adhere to these obligations to ensure proper tax compliance. Individuals earning income in China must file an annual tax return by the prescribed deadline, typically before March 31st of the following year. The tax return should accurately report all sources of income, deductions, and exemptions claimed.

Foreigners may need to submit supporting documents, such as income statements, employer statements, and relevant receipts. Adhering to the reporting and filing requirements is crucial to avoid penalties and maintain good standing with the Chinese tax authorities. Consulting with tax professionals or seeking guidance from the tax authorities can provide further clarity on the specific reporting and filing requirements for foreigners.

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