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Section I: Teaching English in China continued—Foreign Teacher Compensation

Income Tax

Grade Liability After 4,800 Rate %
1 Less than 500 Yuan 5
2 500 - 2,000 10
3 2,000 - 5,000 15
4 5,000 - 20,000 20
5 20,000 - 40,000 25
6 40,000 - 60,000 30
7 60,000 - 80,000 35
8 80,000 - 100,000 40
9 Over 100,000 45

There is an income tax in China in which the first 4,800 RMB (as of January 2006), for foreigners, is tax exempt. Keep in mind that the Chinese government has signed international tax agreements with just about every Western country and that foreigners who are responsible for paying income tax in their home countries do not have to pay income tax in China until the new tax year begins (when one is eligible to declare a bona fide foreign domicile). For example, if you enter China after July 1st but before December 31st, you would have to declare your income earned in China and pay income tax on that in your home country as part of the total income earned during that tax year. Most Chinese employers simply are unaware of this fact so you should clarify this with them (before they start deducting income tax) so that you are not "double-taxed." Consult the embedded tax table.

However, many employers typically pay the taxes on behalf of the foreigners where the total income is less than 5,000 and public universities, as well as SAFEA accredited institutions, appear to be tax exempt, at least for the initial three years of employment. Technically speaking, you do have to provide tax receipts when converting RMB into foreign currency at the Bank of China. However, many foreigners rely on the "gray market" of money changers, often located in open view in the lobbies of major banks, for converting currency as the rates offered are very competitive and tax receipts are not required (see section Changing, Sending and Receiving Money in the chapter Currency and Banking). As an even simpler and cheaper alternative, simply ask any Chinese national with an ID card to exchange your renminbi into U.S. currency for you.

Sample Calculation of Income Tax

Let's assume your salary is 8,000 yuan. The first 4800 is tax exempt. That leaves 3200 that is subject to tax. The first 500 yuan is taxable at a 5 percent rate (per grade one, above). That leaves a remaining 2700 that is taxable. Of that 2700, the next 1500 is taxable at 10 percent (per grade two, above), and the remaining 1200 is taxable at 15 percent (per grade three, above). So, we have:

500
x
.05
=
25
1500
x
.10
=
150
1200
x
.15
=
180
Total
=
355

On a gross monthly salary of 8,000 yuan, your take-home pay would be 7,645 yuan.




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