Labor taxes in China

Daxue Talks transcript #34: Understanding labor taxes in China and non-taxed items for foreign workers

Labor taxes in China

Find here Daxue Talks episode 34. In this episode of Daxue Talks, Matthieu David, the founder and CEO of daxue consulting, explains how the labor is taxed in China and what tax-free items can an entrepreneur offer to its foreign workers in China.

Full transcript below:

Matthieu David:

Hello, I am Matthieu David the founder of Daxue Consulting, a strategic market research company based in China – in Beijing, Shanghai and Hong Kong. We have been working with more than 400 clients over the last 10 years since 2010.

Let’s talk about taxes on labor. The tax rate from the company on top of the gross salary is 39%. The tax paid by the employee is about 17%. A few years ago, it was 41% for companies including social insurance tax and labor tax and around 20% for employees. This has been reduced in order to boost the economy by leaving more disposable income to employees and increase salaries. What you have to know is that the rates varied depending on the year and that you have taxes paid by the employees based on their gross salary. What you have to know is that there is a maximum. When your salary is above 22 thousand renminbi in Shanghai – it is a different rate for Beijing or Changsha for instance – then you don’t have to pay any more tax as an employee or employer. It seems a bit contrarian for a lot of countries like from Europe, where, actually, the higher the salary the higher the tax paid by the company. About what you can offer to a foreigner as an incentive – which is not included in the income so you don’t have to pay a tax on it as an employer – are housing up to 35% of the gross salary, Chinese classes and also 1 or 2 flights which can be seen as a perk with no tax on it. For these, you should check with your accountant and lawyer. Nevertheless, rules on housing, learning Chinese and education of employees’ children have been constant for the past years. All these are part of the welfare that the company can more easily pay because there is no tax on these items.

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