China has many taxation requirements that require intricate calculations by employers to achieve compliance, a payroll manager said May 14.
A series of tax system reforms that were first implemented in 2018 adjusted numerous aspects of how employment-related taxes are calculated in China, said Deborah Piacitelli, CPP, global payroll leader at W.L. Gore & Associates Inc.
Four of China’s seven progressive income tax brackets that apply to employment income were changed in October 2018, Piacitelli said at the annual American Payroll Association Congress in Long Beach, Calif. Although rates were not changed, the ranges of income applicable to the first three brackets were widened and the range of income applicable to the fourth bracket was narrowed.
With regard to the applicable range of monthly income, the first-bracket rate of 3% now is in effect for the first 3,000 yuan (U.S. $436.31), up from the first 1,500 yuan (U.S. $218.15).
The second-bracket rate of 10% is in effect for more than 3,000 yuan and up to 12,000 yuan (U.S. $1,745.23), compared with more than 1,500 yuan and up to 4,500 yuan (U.S. $654.46).
The third-bracket rate of 20% is in effect for more than 12,000 yuan and up to 25,000 yuan (U.S. $3,635.89), compared with more than 4,500 yuan and up to 9,000 yuan (U.S. $1,308.92).
The fourth-bracket rate of 25% is in effect for more than 25,000 yuan and up to 35,000 yuan ($5,090.24), compared with more than 9,000 yuan and up to 35,000 yuan.
The rate of 30% continues to be in effect for monthly income of more than 35,000 yuan and up to 55,000 yuan; 35%, monthly income of more than 55,000 yuan and up to 80,000 yuan (U.S. $11,634.84); and 45%, monthly income of more than 80,000 yuan.
The basic personal monthly exemption from taxable employment income also increased Oct. 1, to 5,000 yuan (U.S. $727.18) from the previous 3,500 yuan (U.S. $509.02), Piacitelli said.
China’s social program tax rates vary among cities, requiring employers to account for variations among cities’ rates when performing calculations, Piacitelli said. Each city assesses taxes for five types of social insurance--pension, health, maternity, unemployment, and occupational injury--and also assesses tax rates for a housing fund, she said.
Employees typically are assessed a pension insurance tax rate of 8%, while the maximum pension insurance tax rate for employers that cities may assess is 16%, Piacitelli said. The maximum pension insurance tax rate that cities previously could assess on employers was 20%, but this generally decreased to 16% as of May 1.
Cities generally assess employees a health insurance tax rate of 2%, and it is uncommon for cities to assess employers a health insurance tax rate of more than 12%, with many cities assessing a quite lower rate, Piacitelli said. Unemployment tax rates assessed by cities on employees typically range from 0.2% to 0.5% and for employers typically range from 0.5% to 1%, and employees generally are not assessed a maternity tax rate but cities may assess a maternity tax rate of up to 1%.
The average occupational injury tax rate assessed on employers is 0.75%, Piacitelli said, and it is uncommon for cities to assess an occupational injury tax rate on employees. Housing-fund tax rates for employers and employees typically range from 5% to 12%, she said.
Each city establishes minimum and maximum amounts of taxable income on which the social tax rates may be assessed, and some cities vary the minimum and maximum taxable amounts among the different types of social tax.
More information regarding payroll in China is available in Bloomberg Tax’s China Payroll Primer.