Income tax for English teachers in China - explained.
What is the amount of income tax foreign teachers and other expats in China need to pay and how to calculate your net salary?
We will show how much taxes you should pay so you won't have to second-guess it. It's also a good way to check if you've been paid fairly.
Imagine you've just received an offer from a school in China and checked every clause with our checklist. You divided the salary in yuan by 7 to see approximately how much it is in USD, or used our currency converter to get an exact number. And it seems you're gonna be fine with what you will be earning in China. Or will you?
To answer this question, let’s talk about the thing nobody likes – taxes.
The salary you've seen in the job ad or the one stated in the contract is likely your gross income - which means it will be taxed. Needless to say, schools and recruiters are always trying to show the salary before tax to make the position look more lucrative.
🧮 How is income tax calculated?
Most recruiters and school HRs won't tell you the exact number because they don't know the formula and aren't familiar with the calculation method (and not because they are trying to cheat you). Income tax is comparably lower in China than in the US or most of the European countries.
If you ask your potential employer how much will be deducted as an income tax from your salary, probably the answer will be something like “Not too much. It can be somewhere between 1000 to 2000 RMB".
For most ESL teachers in China, taxes vary within this range. However, if you are planning to work as a top executive, you might need to add one more 0 at the end :)
To figure out the exact amount, let’s do some math and check how the income tax is calculated.
Firstly, you need to use an Income Tax Rate Table. It seems to be very simple, but maybe confusing at the beginning.
Take a look at the table below, but don’t jump into it and let me explain how to use it.
Note: The above Tax Rates are only applicable for Comprehensive Income. Not applicable for other individual income such as interest, dividends, lease etc.
The most important part is to find the correct amount of taxable income. To do so, you can apply the formula below;
Taxable Income = (gross salary) - (employee social security contribution) - (standard deduction) - (additional itemized deductions) - (other allowable deductions)
It would be very easy to calculate if there was nothing to subtract from the gross income. It can feel like you are lost in a maze if you don't know the obscure things like “standard deduction”.
These days (2020), standard deduction = 5,000RMB, which means people making less than 5,000RMB don't need to pay income tax.
Let’s say you are offered 20,000RMB monthly salary.
Step 1 - Find out your taxable income
Deduct the amount of standard deduction (5,000) from your salary (20,000)
Step 2 - Check your tax level
According to the table, 15,000RMB taxable income is in Level 2.
Step 3 - Multiply the taxable income with the tax rate in a designated level
The tax rate for Level 2 is 20%.
15,000 x 20% = 3,000
That’s not the end!
Step 4 - Calculate your monthly income tax
Deduct the amount in the “quick deduction” section from the last amount
For level 2, it is 1410.
3000 – 1410 = 1590RMB - this is your income tax
The result - If you are offered 20,000RMB, it means approximately 1,590RMB will be deducted from your salary as a tax and you will be paid 18,410RMB
Use our Google Sheet to calculate your income tax and share it with friends.
As you may have noticed, we didn't use all the variables to calculate your taxable income to make it simpler.
Many companies in China provide a salary slip; however, they'd prefer to skip the detailed explanation. I recommend you to calculate your salary before asking for details. If the amount they give you is 100-200 more or less than you calculated, their calculation might be correct. If the difference is more than 500RMB, that's a red flag.
💰 How to pay the income tax?
If you are an employee, no need to worry about it. Your company will do everything for you and deduct the tax from your salary before your paycheck.
When I started working in China nine years ago, I didn’t know anything about taxes. I only knew my gross salary (before tax). I thought they would deduct a couple hundred RMB, which wouldn’t be a big deal. Then I discovered that my nasty first employer would find various reasons to deduct as much as they could from my first salary, which motivated me to learn more about taxes. The amount they were deducting was enough to have a little celebration at McDonald’s.
Don’t get terrified - with a good employer, you won't see deductions from your salary other than the income tax.
📝 Other Important Things To Know
- 🏠 Housing reimbursement. If your employer tells you they will also give some housing reimbursement every month, it doesn’t mean that amount will be exempt from taxation. They will add the housing reimbursement to your salary and you will be taxed will be calcucated from the new gross income.
- 🏖️ Public holidays. According to PRC labor law, if you work during public holidays, your daily overtime salary should be calculated by tripling your actual daily income. Of course, it will also be taxed accordingly. There are 11 public holidays in China during the year which are supposed to be fully paid even if you are not working.
- 🎄 Annual leave. Depending on the company, annual leave days vary between 5 and 20 days. Some employees ask if they can get paid if they don’t use these days; however, most companies will refuse. However, any amount that's paid instead of annual leave days, will be taxed.
- ✈️ Flight reimbursement. When your company offers a flight reimbursement, this sum is added to your gross income, which will be taxed as usual. To avoid this issue, some companies ask their employees to bring receipts to exclude the flight reimbursement from the taxable income.
- 🚑 Medical insurance. Some companies deduct the cost of medical insurance from employee’s gross income. Ask your potential employer if they will provide medical insurance and what does it cover.
I hope with all the instruments given you will feel more confident about the offers you receive and your teaching career in China in general. Now you know how much you will get at the end of the month.