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bendan

Joined: 18 Jun 2004
Posts: 739
Location: North China

Posted: Sun Mar 18, 2007 8:17 am Post subject: Re: Not Agree

HunanForeignGuy wrote:

Bendan,

I am not familiar with Tianjin and cannot speak to the experiences there. On what concrete information are you basing your assumption? Are you personally aware of someone who paid taxes in Tianjin while working illegally and then incurred problems?

The withholding agent (your employer, or a tax firm doing the tax work for them) can't register you in Tianjin if you don't have permission to work for the enterprise concerned. True, you *could* go to the tax office and register yourself, but you would not get the 3200 extra tax free allowance offered to foreigners working in China. In that sense, I was wrong in my original post.

Quote:

They've been telling you porkies extensively, then. The scale that boxcarwilly linked to has been established for at least 13 years. Only the tax free allowance has changed. You said someone on 12,000 would pay approximately 33% on the income over 4800. That's completely wrong.

Quote:

And no, you are wrong again, the threshold has been raised several times actually from RMB 3,500 to the current RMB 4,800.

I said it had changed once in the last decade, from 4000 to 4800. It became 4000 in 1994, as far as I know. When I first paid tax in China in 1999, it was 4000. You said:

Quote:

This amount tends to be revised upwards on an annual basis but this is the figure for this year.

I'd say that you are wrong on this point.

cj750

Joined: 27 Apr 2004
Posts: 3081
Location: Beijing

Posted: Sun Mar 18, 2007 8:34 am Post subject:

the 4800 is treated as a deductible (actually there is another deductible assessed..but not sure what it is or if many orgs even know of the additional deduction..and housing is not taxable but you do have to show a receipt..many folks over report..and there by lessen the taxes paid.....and tax is owed on the reminder at the banned tax rate...but it doesnt take long to get to 20-25 percent...for most FTs these matters never come into play...but if your making 16000 up ..you may encounter a higher tax burden...

HunanForeignGuy

Joined: 05 Jan 2006
Posts: 989
Location: Shanghai, PRC

Posted: Sun Mar 18, 2007 1:21 pm Post subject:

cj750 wrote:

the 4800 is treated as a deductible (actually there is another deductible assessed..but not sure what it is or if many orgs even know of the additional deduction..and housing is not taxable but you do have to show a receipt..many folks over report..and there by lessen the taxes paid.....and tax is owed on the reminder at the banned tax rate...but it doesnt take long to get to 20-25 percent...for most FTs these matters never come into play...but if your making 16000 up ..you may encounter a higher tax burden...

Thank you, CJ, that was exactly my point. A housing allowance with receipt-in-hand is not taxable and frequently they do not focus on it at all, at least for FTs, and yes, indeed, that was also my point, with which Bendan disagreed, indeed it does lessen the tax burden.

ymmv

Joined: 14 Jul 2004
Posts: 387

Posted: Sun Mar 18, 2007 2:47 pm Post subject: Re: Not Agree

HunanForeignGuy wrote:

Next, I will bring your calculation and evaluation of how income tax is paid to the Tax Office tomorrow and see if they concur. Personally, I think not. And I have dealt with them on this issue extensively.

And no, you are wrong again, the threshold has been raised several times actually from RMB 3,500 to the current RMB 4,800.
HFG

I'm only going to deal with the calculation and "threshold" issues here. These were previously discussed a little more than a year ago here:
http://www.eslcafe.com/forums/job/viewtopic.php?t=34056&start=0

and again last October here:
http://www.eslcafe.com/forums/job/viewtopic.php?t=44222&highlight=tax

You all can fight about everything else (i.e. who has to pay, does it depend on your visa status, is a housing allowance income, etc, etc.)

For those with memory loss (newbies are excluded from this snark), or inability to use the search function, or not quite up to understanding tax nomenclature (I purposely used that word for the benefit of those who like big words-personally, I find them pretentious), or those without the inclination, nor access, nor spare time to go down to their local tax office "extensively", here's a primer (in point form) on the individual income tax law of China.

1. China has a progressive rate tax system. That is, the marginal rate (percentage) of tax rises as income rises. That means that lowers amounts of your income are taxed at lower rates while larger amounts are taxed at increasingly higher rates. For example, the first 500 RMB of your "taxable income" (not 1000 RMB as one poster previously stated) is taxed at 5%. The next 1500 is taxed at 10%. And so on.

2. This is not the same as a flat tax which some posters here seem to be confused on. So for example, we get comments like

Quote:

I'm not quite sure how it works, but 11000-4800 is 6200 left over. 15% of that would be 930 rmb and they only take out 800 and change. I don't know the exact amount and I don't want to shuffle through the mess in my desk to find my receipts. So, it seems to be around 12 or 13%. I'm sure the amount withheld varies based on amount earned.

Well at least that poster admitted he wasn't quite sure how it worked. He's right.
You can't just take the salary and divide it by the tax you pay to come up with a tax rate of say "12 to 13%". That's not helpful. Wait... it is helpful .... but only to someone making EXACTLY the same amount as you are. Actually, it would be helpful if he would "shuffle around through the mess on his desk" and come up with the receipt and tell us the "and change" part of the 800+. Back to this at the end when I teach everyone how to calculate the tax - two different ways.

3. The tax tables can be found at the link that boxcarwilly previously posted in this thread:
http://english.tax861.gov.cn/zgszky/zgszky09.htm
If you don't trust that link because it's from the Beijing Tax Office (although it states it's the national tax table for individual income tax), you can find the same table at the bottom of the post here:
http://www.goinvestchina.com/articleview/2006-8-11/article_view_1572.htm
Note also that this is a copy of the basic individual income tax law in China including the original (1980) as revised in 1993 and 1999.
If you don't trust that link because it is from a Chinese investment consulting firm, you can check it against the original law(s) as posted on the official Ministry of Finance website here:
http://english.mofcom.gov.cn/aarticle/topic/lawsdata/chineselaw/200411/20041100311036.html Unfortunately, the actual tax table is not attached to that post. But you will see that otherwise, the law is identical to the one posted in the previous link.
But while you're at it, notice Article 6.1

Quote:

Article 6 Calculation of income amount taxable:
1. For incomes of wages and salaries, the income amount taxable shall be the remainder after deducting 800 yuan from the monthly income.

You'll need that to understand things later.

And if you only want to trust foreigners, well you can find the same tax table here:
http://www.dezshira.com/misc/faq.htm#18
Ernest and Young used to have it on their site as well (as I linked to in my earlier posts a year ago). That link is no longer working. You'll just have to take my word for it that the tax tables were identical.

Also as an aside, the top marginal tax rate is 45% (not 33% as a poster stated).

4. Now we turn to the issue of "taxable income". Let's make it simple and only deal with wages and salary. Let's say you're on a contract that pays 11,000 RMB a month salary. What is your "taxable income"? First according to the Basic Individual Income Tax Law of the PRC (1989 as amended in 1993 and 1999), a taxpayer was entitled to a 800 RMB STANDARD DEDUCTION under Article 6.1 (see I told you to remember that) applicable to all taxpayers, Chinese or foreigners. This has been the case since 1989. At some point in time, this 800 RMB DEDUCTION was raised to 1200 for taxpayers in Beijing and Shanghai and 1600 in Guangzhou and Shenzhen). In 2005, the NPC raised the national STANDARD DEDUCTION for the entire country, effective January 1, 2006, to 1600. So Beijing and Shanghai residents got a bump up of 400 RMB, Guangzhou and Shanzhen stayed the same, and everyone else got an 800 RMB bump.

5. There has apparently been an additional DEDUCTION granted to foreigners on wage income of 3200 since sometime before 1998. Adding the STANDARD DEDUCTION (800) and the "FOREIGNER DEDUCTION" of 3200, you arrive at the 4000 "threshold" which has been often mentioned prior to 2006/01/01.

6. When the STANDARD DEDUCTION for the whole country was raised to the Beijing/Shanghai/(Gungzhou?) level of 1600 effective January 1, 2006, there were questions whether it also raised the "Foreigner Deduction". I posted extensively about this back then here:
[url]http://www.eslcafe.com/forums/job/viewtopic.php?t=34056&start=0
I honestly didn't know the answer because I was never sure if we foreigners had a 4000 EXCLUSION, or whether the raise in the STANDARD DEDUCTION (800 to 1600) also bumped us (foreigners) up to 4800. (1600 + the old 3200). It's never really been made clear other than as stated in TW's article that the now applicable threshold for foreigners (as we all know now) is 4800. Here's another news article from China Daily which says the same thing:
http://www.chinadaily.com.cn/english/doc/2006-02/09/content_518320.htm

7. Bottom line....Foreigners pay tax only on their salary in excess of 4800 nationwide since January 1, 2006. Thus, their "taxable income" is (Salary less 4800).

8. Take the "taxable income" and look at the tax table. Actually, the tax bureaus have provided two tax tables to make the calculation easier due to the progressive rate nature of the calculation.

Table One - The Offical Tax Table:
1 Taxable Income of 500 yuan or less -- 5%
2 That part of taxable income in excess of 500 to 2,000 yuan -- 10%
3 hat part of taxable income in excess of 2,000 to 5,000 yuan -- 15%
4 That part of taxable income in excess of 5,000 to 20,000 yuan -- 20%
5 That part of taxable income in excess of 20,000 to 40,000 yuan -- 25%
6 That part of taxable income in excess of 40,000 to 60,000 yuan --30%
7 That part of taxable income in excess of 60,000 to 80,000 yuan -- 35%
8 That part of taxable income in excess of 80,000 to 100,000 yuan -- 40%
9 That part of taxable income in excess of 100,000 yuan -- 45%

9. Let's take a typical example:
Say you're making a straight salary of 11,000 a month (doesn't include meal allowances, phone allowances, etc. etc.) We can calculate the tax as follws:
Income (11,000) - Standard deduction (1600) - Foreigner Deduction (3200) or more simply 11,000 - 4800 = 6200 TAXABLE Income.
Applying the tax table, the first 500 is taxed at 5%, the next 1500 at 10%, the next 3,000 at 15% and the last 1,200 at 20%. Like this:

Taxable Income X Tax Rate
500 x 5% = 25 (First 500)
1500 x 10% = 150 (Excess over 500 up to 2000 = 1500)
3000 x 15% = 450 (Excess over 2000 up to 5000 = 3000)
1200 x 20% = 240 Excess over 5000 = 6200-5000 = 1200)
6200 -------------- 865 Tax Due

10. But the Tax Bureaus provide an additional Quick Calculation Tax Table which makes calculation much easier. It takes into account the varying marginal tax rate levels so you need only perform a one time calculation of your "taxable income" times the highest marginal rate your taxable income falls into, and then subtract a Quick Calculation Deduction that adjusts for the lower rates. Here's the Quick Calcualtion Tax Table:

Taxable Income --- Tax Rate (Quick Calc Deduction)
Less than 500 5% (0)
500-2,0 10% (25)
2,000 - 5,000 15% (125)
RMB5,000 - 20,000 20% (375)
20,001 - 40,000 25% (1,375)
40,001 - 60,000 30% (3,375)
60,001-80,000 35% (6,375)
80,001-100,000 40% (10,375)
RMB100,000 + 45% (15,375)

Let's run the same 11,000 salary through this table.
Taxable Income = 11,000 - 4800 = 6,200
Looking up 6,200 Taxable Income, we see it falls in the 20% tax bracket.
6200 x 20% = 1240
1240 less the Quick Calc Amount for the 20% bracket (375)
1240 - 375 = 865 Tax Due

Same result.

Bendan's earlier posted another table in this thread. Don't know where he/she got it, but it is basically correct for the rounded numbers used there. If your salary number is on that table, you'll get the same results as above.

Kevin, go dig out that pay receipt from your desk and see if it's not 865. (If it's not, perhaps you have a few "extras" in the "salary" you stated such as, for example, a 100/month local phone allowance, utilities allowance, etc.)

Let's take another example:

A poster here stated:

Quote:

RMB 12,000 per month minus RMB 4,800 leaves a taxable income of approximately RMB 7,200 and if one consults the tax tables for foreign nationals in the PRC, then the taxable rate for that amount would be approximately 33%.

Let's run that number, too: A 12,000 salary leaves a "taxable income" of exactly 7,200.

Tax Table Calculation:
Taxable Income Tax Rate
500 x 5% = 25 (First 500)
1500 x 10% = 150 (Excess over 500 up to 2000 = 1500)
3000 x 15% = 450 (Excess over 2000 up to 5000 = 3000)
2200 x 20% = 440 Excess over 5000 = 7200-5000 = 2200)
7200 1065 Tax Due

Quick Calc Method
Taxable Income = 12,000 - 4800 = 7,200
Looking up 7,200 Taxable Income, we see it falls in the 20% tax bracket (not 33%).
7200 x 20% = 1240
1240 less the Quick Calc Amount for the 20% bracket (375)
1440 - 375 = 1065 Tax Due

Bendan Table Method:
12000 - 1065 Tax Due

Disclaimer: As I said at the top this post, I'm only dealing with a straight salary/wage here. The rest of you can argue about the other stuff (taxablity/nontaxability of housing, plane fare, meals, travel stipends, etc.), but one you arrive at what is and isn't included in "salary and wages", this is how the tax is calculated.

HFG promised to visit his local tax office tomorrow. Give them those two numbers, 11,000 and 12,000 and have them run them their way and let us know what numbers they come up with exactly.

bendan

Joined: 18 Jun 2004
Posts: 739
Location: North China

Posted: Mon Mar 19, 2007 1:02 am Post subject:

Quote:

Bendan's earlier posted another table in this thread. Don't know where he/she got it, but it is basically correct for the rounded numbers used there. If your salary number is on that table, you'll get the same results as above.

I calculated it myself, based on the scale published by the government. My income varies according to how much I teach, so the tax is almost never the same from month to month. The amount I pay (and I can see the tax certificates) is always the same as the amount I calculate using the scale that boxcarwilly and ymmv linked to.

ymmv

Joined: 14 Jul 2004
Posts: 387

Posted: Sat Nov 01, 2008 11:35 am Post subject:

Updated information: http://forums.eslcafe.com/job/viewtopic.php?t=66479

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