Individual income tax (IIT) is one of the first costs a foreign employee or a foreign employer will meet in China, and it is also one of the most commonly misunderstood. IIT applies to wages, salaries, bonuses, and certain other categories of income, is withheld at source on every payroll run, and is reconciled once a year through a mandatory annual settlement. The rates, brackets, and deductions below are identical in Guangzhou, Shenzhen, Foshan, Dongguan, and every other mainland Chinese city, which means a clean understanding of the rules saves real money whether you employ one expat or a hundred local staff.
- 3% to 45%: the seven progressive IIT brackets on comprehensive income in 2026.
- RMB 5,000: the standard monthly deduction (RMB 60,000 per year).
- 183 days: residence in a calendar year that makes an individual a China tax resident.
- RMB 2,000: monthly special deduction per child for education or infant care.
- March 1 to June 30: the annual IIT reconciliation window.
- 20%: flat rate on dividends, interest, and incidental income.
- China IIT uses seven progressive brackets from 3% to 45% on comprehensive income.
- Employees get a RMB 5,000 standard monthly deduction plus special deductions for housing, children, and elderly parents.
- Tax residents (183 or more days in China) are taxed on worldwide income; non-residents only on China-sourced income.
- Employers must withhold IIT monthly and reconcile annually between March 1 and June 30.
- A non-domiciled expat can keep certain foreign income tax-free for up to six consecutive years of residence.
- How Does China’s Individual Income Tax Work?
- What Are the 2026 IIT Rates and Brackets?
- What Deductions Lower Your China Tax Bill?
- Am I a China Tax Resident? The 183-Day and Six-Year Rules
- How Is IIT Withheld and Filed in China?
- Worked Example: Tax on a RMB 40,000 Monthly Salary
- Frequently Asked Questions
How Does China’s Individual Income Tax Work?
China’s Individual Income Tax Law and its implementing regulations divide income into categories, each with its own tax treatment. The most important category for employees and employers is comprehensive income, which bundles wages and salaries, labor remuneration, author’s remuneration, and royalties. Comprehensive income is taxed at progressive rates from 3% to 45% after deductions. Other categories are taxed separately: interest, dividends, and incidental income generally face a flat 20% rate, while property lease and property transfer income have their own rules.
For employers, the practical consequence is that IIT is a payroll function, not an annual afterthought. A company must calculate the tax on every salary cycle, withhold it from the employee’s pay, and remit it to the tax authority on time. Most foreign companies in Guangzhou and Shenzhen fold this into a managed China payroll and HR service so that withholding, filing, and the annual reconciliation stay correct every month.
What Are the 2026 IIT Rates and Brackets?
Comprehensive income is taxed on an annual basis at seven progressive brackets. The quick deduction in the right-hand column is subtracted after applying the rate, which keeps the tax smooth as income crosses a bracket boundary.
| Annual taxable income (RMB) | Rate | Quick deduction (RMB) |
|---|---|---|
| Up to 36,000 | 3% | 0 |
| 36,000 to 144,000 | 10% | 2,520 |
| 144,000 to 300,000 | 20% | 16,920 |
| 300,000 to 420,000 | 25% | 31,920 |
| 420,000 to 660,000 | 30% | 52,920 |
| 660,000 to 960,000 | 35% | 85,920 |
| Over 960,000 | 45% | 181,920 |
Employers apply the same brackets on a monthly basis when withholding. The monthly taxable bands are RMB 3,000, 12,000, 25,000, 35,000, 55,000, and 80,000, with quick deductions of 210, 1,410, 2,660, 4,410, 7,160, and 15,160 respectively. The annual settlement later trues up any difference between what was withheld and the final annual liability.
What Deductions Lower Your China Tax Bill?
Three layers of deductions reduce taxable income. First, every employee receives a standard deduction of RMB 5,000 per month (RMB 60,000 per year). Second, personal contributions to mandatory social insurance and the housing fund are deductible — this is a meaningful offset in cities like Guangzhou and Shenzhen, where social insurance and housing fund contributions can be substantial even after the contribution base is capped. Third, taxpayers can claim special additional deductions, which were expanded in 2023 and remain in force in 2026:
| Special additional deduction | Monthly amount (RMB) |
|---|---|
| Infant care (children under 3) | 2,000 per child |
| Children’s education | 2,000 per child |
| Continuing education | 400 |
| Housing loan interest | 1,000 |
| Housing rent | 1,500 / 1,100 / 800 by city tier |
| Support for elderly parents | 3,000 (only child) / 1,500 (shared) |
Foreigners resident in China can claim the same special additional deductions as Chinese nationals. The historical tax-free allowances that were once available only to expats — such as housing, meals, and laundry — have been largely phased out and replaced by this unified deduction framework, so expats should not assume the old perks still apply. If you are unsure whether an employee is eligible, a payroll review that checks whether foreigners must pay social insurance in China will usually clarify both the social insurance and the deduction picture at the same time.
Am I a China Tax Resident? The 183-Day and Six-Year Rules
Residency decides the entire scope of an individual’s China tax exposure. An individual is a China tax resident if they have a domicile in China, or if they have no domicile but reside in China for 183 days or more in a calendar year. A tax resident is taxed on worldwide income; a non-resident is taxed only on China-sourced income.
| Tax resident | Non-resident | |
|---|---|---|
| Scope of tax | Worldwide income | China-sourced income only |
| Threshold | Domicile, or 183+ days in a year | Fewer than 183 days |
| Standard deduction | RMB 5,000 per month | RMB 5,000 per month on wages |
| Annual reconciliation | Required | Generally not required |
There is a further relief known as the six-year rule. A non-domiciled individual who stays in China for 183 or more days each year, but for fewer than six consecutive years, can keep foreign-sourced income that is paid by a foreign employer exempt from Chinese IIT. Once they cross 183 or more days for six consecutive calendar years, worldwide income becomes taxable from the seventh year. A single absence from China of more than 30 consecutive days in a calendar year resets the six-year clock, which is why international travel patterns genuinely matter for expat tax planning.
How Is IIT Withheld and Filed in China?
Employers are withholding agents. Each month they calculate IIT on the employee’s cumulative taxable income, deduct it from salary, and remit it to the State Taxation Administration. After the tax year ends, the employee must complete an annual reconciliation settlement between March 1 and June 30 of the following year, either independently or through the employer, to refund over-withheld tax or pay any shortfall. Getting this right is one of the core tasks in a compliant China payroll process for foreign companies.
Bonuses deserve special attention. Under a policy that has been extended through December 31, 2027, a qualifying annual one-time bonus can be taxed separately by dividing it by 12 to find the applicable rate, or it can be merged into comprehensive income — whichever produces a lower result for that employee. The interaction between bonuses, the year-end settlement, and the six-year rule is exactly where expat payroll errors occur, and we cover the mechanics in detail in our guide to China’s 13th month salary and year-end bonus rules.
Worked Example: Tax on a RMB 40,000 Monthly Salary
Here is an illustrative monthly calculation for a foreign employee earning RMB 40,000 gross in Guangzhou or Shenzhen.
- Gross salary: RMB 40,000
- Standard deduction: RMB 5,000
- Personal social insurance and housing fund: RMB 4,000 (varies by city and is capped)
- Special additional deductions: RMB 3,500 (one child’s education at RMB 2,000 plus housing rent at RMB 1,500)
- Taxable income: RMB 40,000 – 5,000 – 4,000 – 3,500 = RMB 27,500
- IIT: RMB 27,500 × 25% – 2,660 = RMB 4,215
The 25% rate and the 2,660 quick deduction come from the monthly withholding table, where RMB 27,500 falls in the RMB 25,000 to 35,000 band. The result is a take-home salary of roughly RMB 31,785 after tax and personal contributions. Because every component — the social insurance base, the rent tier, and the number of dependents — shifts with personal circumstances, we recommend having bookkeeping and tax professionals verify the calculation before the first payroll run rather than relying on a one-size-fits-all figure.
Frequently Asked Questions
How much tax do foreigners pay on salary in China?
Foreign employees pay the same progressive IIT as locals, from 3% to 45% on comprehensive income after the RMB 5,000 standard deduction, social insurance contributions, and any special additional deductions. A typical mid-senior expat in Guangzhou or Shenzhen often lands in the 20% to 30% band on the marginal portion of income.
What is the 183-day rule for China income tax?
An individual with no domicile in China becomes a China tax resident after residing in China for 183 or more days in a calendar year. Residents are taxed on worldwide income, while non-residents are taxed only on China-sourced income.
Do expats get the RMB 5,000 standard deduction in China?
Yes. The RMB 5,000 monthly standard deduction applies to both residents and non-residents on wage income, and resident foreigners can also claim the special additional deductions for children, housing, and elderly parents.
How is China income tax paid each month?
The employer withholds IIT from salary every month and remits it to the tax authority. After the year ends, the employee completes an annual reconciliation between March 1 and June 30 to settle any overpayment or shortfall.
What income is taxed at 20% in China?
Interest, dividends, and incidental income are generally taxed at a flat 20% rate, separate from the progressive rates applied to wages and salaries. Dividend withholding for foreign shareholders can differ depending on treaty relief.
Disclaimer: This article is for general information only and does not constitute tax, legal, or accounting advice. Individual income tax rates, deductions, and residency rules are subject to change, and personal circumstances — including totalization agreements, treaty relief, and city-specific social insurance bases — can materially affect the outcome. Always consult a qualified China tax adviser before relying on any figure in this article.
