04.14.08
Tax Day…in China?
Today is April 14, the day before April 15, the infamous date when the IRS requests all American citizens to submit their tax returns. This will be my first Tax Day in the US since 2003, and it got me thinking about paying my taxes in China. This is actually a question I get quite often from American friends. How did I pay my taxes in China? The funny thing is that I really have no idea how or if I paid my taxes in China at all (excluding projects for which I was paid for in USD).
I spent my first two years in China teaching at Chinese universities, and my salary was always in Chinese currency…and when I say “in” Chinese currency, I literally mean in Chinese currency. On the first day of every month, one of the teachers from my school would knock on my door, and hand me a folded wad of 45 one hundred RMB notes (approximately $540 at that time). There was no pay stub, no deductions, not even a little red envelope for my bills.
Typically, getting paid in cash would not be a bad thing, but I wasn’t exactly stoked about having to ride my bike to the bank once a month with that kind of cash on my person. Furthermore, I always wondered if there were any taxes I would ever be expected to pay. I asked the school administration about this several times and was never given a clear answer.
After going through this same overly simplistic process in my second university job, I came to the conclusion that my taxes were probably taken out before my income was figured. Thus, a job which had a salary of 4500 RMB per month in China, actually paid 4500 RMB, whereas in the US, a salary quote is always before taxes. Furthermore, at the end of the year there was no filing I was required to turn into the Chinese tax bureau.
This tax situation, or lack of tax situation I should say, is not just limited to foreign experts or English teachers. When I worked at the barbershop, the practice was the identical. Every month, the employees would receive their earnings, in cash, without any forms listing withholdings, and without filing tax returns at the end of the year. (It would be interesting to hear how, or if this situation is different for those whose positions are higher up on the economic totem pole than those of an English teacher or a hair washer.)
Now that I am back in the US, I am back to going through the same procedures we all do in April to ensure that Uncle Sam is getting his fair dime me. I have returned to the land of pay stubs, deductions, and 1099′s, and I can’t help but feel distant from the world where you get paid in a wad of bills, taxes are an afterthought, and there are no year-end returns to file. Sometimes it’s just the little things you miss about a living in the Middle Kingdom, like not paying your taxes.
Turtlewind
said,
April 15, 2008 at 2:08 am
Quoted salaries for office jobs in China are usually before tax, but it gets taken out before you receive the money so you don’t have to calculate things yourself. I believe you also have to fill in an annual tax statement if you’ve earned more than 100,000 RMB in the previous year, but as far as I know you don’t actually pay the tax at that point.
Income tax in China is a progressive tax, so you pay nothing on the first X RMB per month, then a low rate on the next band and gradually higher amounts as your salary increases. Your barbershop wages were probably low enough that you didn’t have to pay any tax there, but 4500 a month should be well above the minimum threshold. It’s possible that they rolled that into your salary beforehand, but based on their evasive answers I guess they just weren’t paying any.
FOARP
said,
April 15, 2008 at 3:32 am
@Ben – Tax in China is just about as much of a pain in the posterior as it is in other places. My company had had the excellent idea of listing me as self-employed for tax purposes, hence all the tax forms needed to be filled in by me every week and filed with the appropriate office – and with the usual stamps. Halfway through my contract the Shenzhen government decided that foreign employees were all going to have to pay the full 30% income tax on taxable income on top of the 8% tax we had been paying up until then – thankfully the company decided to take up some of the slack, but it did make something of a mockery of our 30% pay rise for the second year.
As for how things are arranged for university teachers etc., I understand that the first 6,000 is tax free for foreigners – hence never having to worry about it. For Chinese employees I think the tax is deducted from the pay check automatically along the lines of the PAYE (pay as you earn) system we have here in the UK – the company does all the tax stuff for you. Income tax for Chinese employees starts at 1500 yuan – but I think this is going to rise to 2000.
Was I grateful for the virtual tax-free status I enjoyed during most of my stay in China? Absolutely. However, once I started being taxed it really began to irk me that I was basically receiving nothing for the tax money I was handing over. The police seemed incapable even of stopping a man walking stark naked past their guard post at the end of my road, socialised healthcare is non-existent and education for the children of my collegues was paid for entirely by themselves – although I understand that the government is instituting free education in the countryside. Military spending, on the other hand, makes up a sixth of all government spending (i.e., 5% of GDP out of the 30% (roughly) of Chinese GDP constituted by combined central and local government spending) – and is hardly going to be used for purposes I agree with. I suppose the streets were kept (reasonably) clean and the roads and infrastructure were (after a fashion) maintained – but this is not much compensation.
FOARP
said,
April 15, 2008 at 6:23 am
On the other hand, maybe people in China are not the only people justified in feeling that their tax money is going to waste:
“Yes, this is a pesky chore, but remember that paying taxes is not a ”one-way street.” When you send your money to the government, the government, in return, provides you with vital services, such as not putting you in prison. The government also uses your money to pay for programs that benefit all Americans, such as the Catfish Genome Project.”
Gabrielle
said,
April 15, 2008 at 9:45 am
I really have no idea how the Chinese pay their taxes, but I was told that I wouldn’t have to pay taxes because I wasn’t getting paid enough to be taxed. In the end I was getting paid 4000 RMB. I was told once what amount you had to make in ordered to be taxed, but my memory fails me now.
I too felt uncomfortable carrying that much money in my pocket. I always feared that somehow I would lose it or a big gust of wind would blow it all away. However, there was something nice about being able to fan myself with that much cash – especially if I had saved a lot over the last few months.
Linda
said,
April 27, 2008 at 12:26 am
I think the tax-free threshold for foreigners is around 4800rmb, so you probably didn’t need to pay any tax. I was in charge of distributing the salaries for the foreign teachers at my school (a small international school in SH) and some of the staff were getting paid around 20,000rmb a month and it was all paid in cash (sheesh!).
I think the way we got around the tax issue was there were two contracts: the real one (showing the amount staff were actually paid), and then the conctract the government knew about that was used to get working visas (showing that they earned 5000rmb/month). I’ve heard a lot of places have the dual contract system. Gotta love the back door
Andy
said,
April 9, 2009 at 12:13 am
After working five years in companies in Nanjing, I have been paid in USD, EU, RMB all in cash or legitimately. It’s always barrels of fun to read through the IRS and Chinese tax codes to figure out the real deal. Here is a brief guide for everyone’s reference:
http://info.hktdc.com/chinaguide/4-1.htm