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The Individual Income Tax Law (IIT) came into force on 1 January 1994. IIT is levied on individuals qualifying as resident for purposes of taxation. Generally, tax liability is dependent upon the period of time an individual spends in China and the source of that individual's income. For individuals resident in China less than 90 days: exemption from IIT is available where employment income is paid by an overseas establishment. Where the remuneration is paid by a China establishment, that part of employment income derived from working in China will be taxable. Where an individual is a resident of a country which has signed a double taxation avoidance treaty with China, in some cases the 90-day exemption period may apply for up to 183 days.

Individuals resident more than 90 days in China but less than a year, are subject to tax on their China-source income. However, a foreign individual who is a director, general manager or deputy general manager of a China-based enterprise is also subject to IIT on foreign-source income for services performed outside China. Individuals resident in China for more than a year, but less than five years, are subject to tax on both China-source and foreign-source income that is remitted to China. Finally, individuals resident in China for over five years are subject to tax on worldwide income, irrespective of whether the income is remitted to China.

WHAT IS TAXABLE

The following items of income are taxable:

• income from employment
• income derived by individual industrialists and merchants from production and business operations
• income from the contracting or leasing of operations to enterprises or institutions
• income from personal services provided by independent contractors
• income arising out of stock options
• income from author's remuneration
• royalties
• interest, bonuses and dividendsincome from lease of property
• income from transfer of property
• income of a non-recurring natureother
  
• income specified as taxable by the Ministry of Finance
  

EMPLOYMENT INCOME

The following items of remuneration are treated as either taxable or non-taxable: 

Income	Taxable (Yes / No)
Wages, salary and bonus	Yes
Cash allowances	Yes
Relocation allowances	No
Housing provided by employer	No
Utilities, telephone, other household expenses in employer-provided housing	No
Housing and furnishing cost reimbursement	No
Home leave travel allowance	No
Business travel allowance	No
Child education allowance	No
Language training allowance	No
Personal tax paid by employer	Yes (subject to formular calculating amount of tax payable)
Company car expenses	No
Deferred compensation	Yes (unless received post-cessation of China employment)
Stock options	Yes
Employer loan for income tax or bonus payment for loan repayment	No

A monthly deduction of RMB 1600, and an additional deduction of RMB 3200 for non-Chinese nationals (amounting to RMB 4800 for expatriate taxpayers) is allowed in calculating the amount of IIT payable.

TAX RATES AND PERSONAL ALLOWANCES

IIT is levied on certain types of taxable income at progressive tax rates, as follows:

Monthly taxable income	Tax rate	Deduction
Not exceeding	5%	0
That part exceeding RMB500 but not exceeding RMB2,000	10%	25
That part exceeding RMB2,000 but not exceeding RMB5,000	15%	125
That part exceeding RMB5,000 but not exceeding RMB20,000	20%	375
That part exceeding RMB20,000 but not exceeding RMB40,000	25%	1375
That part exceeding RMB40,000 but not exceeding RMB60,000	30%	3375
That part exceeding RMB60,000 but not exceeding RMB80,000	35%	6375
That part exceeding RMB80,000 but not exceeding RMB100,000	40%	10375
That part exceeding RMB100,000	45%	15375

Tax = (Monthly taxable income) x Tax rate - Deduction 

Individuals are subject to certain types of income at a flat tax rate of 20%. This includes income arising from personal services provided by an independent contractor, author's remuneration, royalties, interest, dividends, property lease, and the transfer of property.  

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