China, People's Republic of

Individual - Income determination

Last reviewed - 30 December 2019

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-taxable 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 tax registration), 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

In China, an individual may engage in the following types of businesses: privately-owned business, sole proprietorship enterprise, and partnership enterprise. These three types of business entities are taxed at the individual investor/partner level rather than 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. Interest income received from bank deposits in China is currently not taxable.

Rental income

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

Income from intellectual property (IP)

Royalties are subject to the progressive tax rates of 3% to 45% applicable to comprehensive income but may be reduced under a tax treaty/arrangement.

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.