To describe employer and employee taxes in China as complicated is an understatement. My law firm usually advices our clients to secure bookkeeping/accounting assistance for this and we do not get much involved with calculating these figures. However, a client of ours for whom we are handling a number of China employment law matters requested we give them a quick overview on the China employer and employee taxes it should expect will need to be paid. The below is a portion of the memorandum we provided to our client, setting out those required payments.
I. Introduction
In Beijing, the “Five Insurances” (specifically, pension insurance, on the job injury insurance, medical insurance, maternity insurance and unemployment insurance) and the “One Fund” (housing fund insurance), along with the individual income tax, constitute the deductions that must be made from the salary of Chinese employees employed in Chaoyang District.
II. Individual Income Tax
Your employees’ individual income tax is withheld from their gross salary. You as the employer must pay to the government your employees’ income tax on behalf of your employees. After you pay your employees’ shares, your employees are not obligated to pay additional income tax to the Chinese government.
The amount of income tax depends on the employee’s gross salary and is determined using the following formula: Individual Income Tax = [Monthly Salary – Tax Threshold (3500 Yuan)] x applicable Tax Rate – Quick Deduction Amount. The table below provides 7 levels of Tax Rates. Note that the Taxable Income column below applies only where the employer pays the employee’s income tax on behalf of the employee.
| Taxable Income(Yuan) | Tax Rate (%) | Quick DeductionAmounts (Yuan) | |
| 1 | <1455 | 3 | 0 |
| 2 | 1455 ≤4155 | 10 | 105 |
| 3 | 4155 ≤7755 | 20 | 555 |
| 4 | 7755 ≤27255 | 25 | 1005 |
| 5 | 27255 ≤ 41255 | 30 | 2755 |
| 6 | 41255 ≤ 57505 | 35 | 5505 |
| 7 | > 57505 | 45 | 13505 |
For example, suppose an employee’s gross salary is 10,000 Yuan per month, the amount of individual income tax that must be withheld from his or her salary is: (10,000 – 3500) x 20% – 555 = 745 Yuan.
III. Social Insurance Deductions and Employer’s Shares
Base
Base is used to calculate the amount of Five Insurances and One Fund that the employer/employee must fund. Base is determined based on the employee’s monthly average salary in the previous calendar year (i.e., from Jan. 1 to Dec. 31) (“Employee Figure”), taking into consideration the city’s (here, Beijing) monthly average salary (“City Figure”).
If the Employee Figure is less than 60% of the City Figure, then Base shall be 60% of the City Figure. If the Employee Figure is more than 300% of the City Figure, then Base shall be 300% of the City Figure. If the Employee Figure cannot be determined, then the City Figure shall be used as Base.
Five Insurances
1. Pension Insurance
The amount that must be deducted from the employee’s salary is Base x 8%. Your WFOE’s share is Base x 20%.
2. On the Job Injury Insurance
No amount is deducted from the employee’s salary for this type of insurance. The employer’s share depends on the employer’s industry. In your case, because your WFOE is in an industry with a percentage of 0.5% your WFOE’s share is Base x 0.5%.
3. Medical Insurance
The amount that must be deducted from the employee’s salary is Base x 2% + 3 Yuan. Your WFOE’s share is Base x 10%.
4. Maternity Insurance
No amount is deducted from the employee’s salary for this type of insurance. Your WFOE’s share is Base x 0.8%.
5. Unemployment Insurance
The amount that must be deducted from the employee’s salary is Base x 0.2%. Your WFOE’s share is Base x 1%.
Housing Fund Insurance
The percentage for housing fund insurance for the period from July 1, 2013 to June 30, 2014 is 12%. Your WFOE may postpone funding or fund at a lower percentage (but generally no lower than 8%), upon approval by the Beijing Housing Fund Management Center (“BHFMC”).
Your WFOE’s maximum limit is 12% and the Chinese employee’s maximum limit is 12%. The BHFMC imposes a ceiling on the amount of the housing fund insurance that can be funded by the employer and by the employee, determined by the following formula: City Figure x 300% x 12% x 2. The 2012 City Figure is 5223 Yuan, so the ceiling for 2013 is 3760.56 Yuan.
VI. Illustration
Suppose a Chinese employee of your WFOE earned a monthly average salary of RMB 10,000 Yuan in the previous calendar year (2012) and her salary stays the same in 2013. The 2012 City Figure is 5223 Yuan. The employee’s salary is higher than 60% of the City Figure (3133.8 Yuan), but lower than 300% of the City Figure (15,669 Yuan). So her Base is 10,000 Yuan. As noted above, your WFOE’s industry percentage (for purposes of calculating on the job injury insurance) is 0.5%. Assume your WFOE funds the One Fund at 12%.
Applying the percentages above, her shares of the Five Insurances and One Fund are as follows:
- Pension insurance: 800 Yuan
- On the job injury insurance: 0
- Medical insurance: 203 Yuan
- Maternity insurance: 0
- Unemployment insurance: 20 Yuan
- Housing fund insurance: 1200 Yuan
Total sum: 2223 Yuan
Your WFOE’s shares of the Five Insurances and One Fund with respect to this employee are as follows:
- Pension insurance: 2000 Yuan
- On the job injury insurance: 50 Yuan
- Medical insurance: 1000 Yuan
- Maternity insurance: 80 Yuan
- Unemployment insurance: 100 Yuan
- Housing fund insurance: 1200 Yuan
Total sum: 4430 Yuan
As demonstrated in Section II above, the income tax for an employee with a gross salary of 10,000 Yuan/month is 745 Yuan. So after full deductions of income tax and the Five Insurances and One Fund, her net salary is 7032 Yuan (10,000 – 2223 – 745).
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