China, People's Republic of

There are 9 categories of income (see the Taxes on personal income section for more information). All types of income shall be grouped under the relevant category.

Employment income

Employment income includes wages/salaries, awards, bonuses, hardship and foreign-service allowances, etc. It can take the form of cash, benefits in kind, marketable securities, and any other forms of economic benefits. On the other hand, reimbursements of business-related expenses to employees and certain non-cash fringe benefits provided to foreign individuals, if the amounts are reasonable and supported by valid receipts, are not taxable.

Chinese social security contributions made by the employer in accordance with the Social Security Law are not taxable for IIT purposes.

Overseas social security contributions made by the employer, regardless of whether they are made on a voluntary or mandatory basis, are subject to IIT. IIT on these contributions is normally imposed when the contribution is made instead of at the time of cash withdrawal and/or distribution.

Statutory pension income received after retirement in accordance with the Social Security Law is tax exempted income.

Equity compensation

Income derived by employees from equity plans upon exercise/vesting is generally treated as employment income in nature. Where applicable, equity plan income may be allocated between China and non-China sources. Depending on the features of the plan (e.g. equity holding interest relationship between the listed company and the employee's employing entity, completion of the required record filing procedure), equity plan income may be eligible for favourable tax calculation treatment.

Labour service income

Labour service income refers to gross income derived by individuals from independent services such as design, medical practice, legal practice, accounting, consulting, etc.

Business income

Individual businesses, sole proprietorship enterprises, and partnerships are taxed at the individual investor/partner level rather than at the entity level. Qualified expenses and costs are allowed to be deducted from the gross business income to arrive at the net taxable income (see the Deductions section for more information).

Income from the transfer of property (capital gain)

Income from the transfer of property includes income from transfer of securities, shares, real estate properties, shares of partnership interest, etc. The cost basis of the property and reasonable expenses incurred are deductible from the sales proceeds to arrive at the taxable income.

Dividend income

Dividend income is taxed on the gross amount received, without deductions.

Interest income

Interest income is taxed on the gross amount received, without deductions. 

Rental income

Rental income refers to income derived through the leasing of buildings, machinery and equipment, motor vehicles, ships and other properties, as well as granting of rights to land usage.

Income from intellectual property (IP)

Royalties are subject to the progressive tax rates of 3% to 45% applicable to comprehensive income.

Income derived from the transfer of IP is considered capital gain and subject to the flat tax rate of 20%.

Author's remuneration is subject to the progressive tax rates of 3% to 45% applicable to comprehensive income.

Certain income derived by foreign individuals in relation to IP is not taxable in China, depending on the individual's physical presence in China (see the Residence section for more information) and the source of the income.