Because freelancers are not our employees and we don't pay taxes on payouts, they must declare any income received via Solar Staff by themselves.
To carry on tax accounting in China for your Solar Staff income, you need to:
Be a tax resident
Be aware of your tax obligations
Tax residence
China taxes its residents on their worldwide income, while non-residents are taxed on Chinese-source income only.
Individuals who reside in China for 183 days or more in a calendar year are considered residents for tax purposes (excluding residents of Hong Kong, Macau, and Taiwan).
There are also special rules for foreign nationals and residents of Hong Kong, Macao, and Taiwan (depending on their physical presence in China):
Foreign individuals who reside in China for 183 days or more in a tax year, but not more than 6 consecutive years, do not have to pay tax on their foreign-source income coming from non-residents (foreign organizations and individuals), provided they file a relevant application with the Chinese tax authority.
Foreign individuals who reside in China for 183 days or more per year for over 6 consecutive years will be subject to tax on their worldwide income starting the 7th consecutive year, provided they reside in China for 183 days or more during the year. If the foreign individual spends more than 30 consecutive days outside of China in any tax year, the six-year count is reset.
Foreign individuals who travel to China and derive income from an overseas employer will be tax exempt if they do not physically stay in China for more than 90 days in a calendar year cumulatively. If the individual is a tax resident of a country/region that has concluded a tax treaty/arrangement with China, the 90-day limit is extended to 183 days during a calendar year or any 12 consecutive months, depending on the applicable tax treaty/arrangement.
China has double taxation agreements with a number of countries (full list), the provisions of which may override the applicable tax residence rules and other provisions of national legislation.
Tax ID number
Tax Identification Number (纳税人识别号) is used by taxpayers in China to file tax returns, pay taxes, open bank accounts, and more.
For individuals using their Chinese resident identity card as identification, TIN is their 18-character ID card number (居民身份证). If the individual has no ID number, the local tax office assigns them a tax identification number (this is relevant for foreigners).
Taxes and contributions payable by freelancers
The exact set of tax liabilities depends on certain conditions, namely on the type of income. China can be said to have two tax status options for Solar Staff freelancers to choose from:
IMPORTANT! Solar Staff does not have the option to choose a specific tax status for freelancers based in China, but you can fill in your tax ID in your account.
Read on for more details about general status-specific taxes and local taxes.
Individual
The status of an individual does not require any special registration and applies to employed people and freelancers alike. Individuals are liable to pay the following taxes and contributions:
Individual income tax / IIT (所得税), which is calculated based on the income category annually, monthly, or per transaction. The tax is figured and paid in renminbi (CNY). China's IIT Law groups personal income into 9 categories with their own tax rates, deductions, and so on:
Let's take a closer look at these categories:
Employment income, Remuneration for labor (professional) services, Author's remuneration, and Royalties
For residents, these categories of income are combined into "comprehensive income." IIT is calculated based on progressive tax rates using the following formula:
(Annual taxable income x Tax rate) – Quick deduction
Annual taxable income is income after deducting the standard basic deduction, specific deductions, specific additional deductions, and other allowable deductions.
The tax rates and deductions are as follows:
Annual income, CNY | Tax rate, % | Quick deduction, CNY |
Up to 36,000 | 3 | 0 |
36,001–144,000 | 10 | 2,520 |
144,001–300,000 | 20 | 16,920 |
300,001–420,000 | 25 | 31,920 |
421,000–660,000 | 30 | 52,920 |
660,000–960,000 | 35 | 85,920 |
Over 960,000 | 45 | 181,920 |
Taxpayers can also claim the following deductions when calculating the annual taxable income:
Personal deductions from comprehensive income:
If the amount received for labor services is below CNY 4,000, a deduction of CNY 800 is allowed, and if the amount received exceeds CNY 4,000, a deduction equal to 20% of the gross receipt is allowed.
Standard basic deduction of CNY 60,000 per annum.
Specific deductions – Chinese social security contributions made in accordance with the Social Security Law, and contributions to the statutory Housing Fund.
Specific additional deductions:
Child education, CNY – 1,000 per child per month
Continued education – CNY 400 per month or CNY 3,600 per annum, depending on the type of education
Mortgage interest – CNY 1,000 per month
Rental expenses – CNY 800, CNY 1,100, or CNY 1,500 per month, depending on location
Elderly care – up to CNY 2,000 per month, depending on the status of the taxpayer
Major medical expenses – above CNY 15,000 and capped at CNY 80,000 per annum
Care expense for children under the age of 3 – CNY 1,000 per child per month
Other allowable deductions, such as employee contributions to qualified corporate annuities and premiums paid to commercial health insurance eligible for IIT incentives.
Charitable contributions to qualified domestic non-profit organisations are deductible to the extent of 30% of your reported taxable income (applicable to all categories of income).
Remuneration for labour services, author's remuneration, and royalties – a deduction equal to 20% of the gross receipt, with a further deduction of 30% allowed for author’s remuneration.
Tax returns and payment. The tax is payable on a monthly basis following the filing of preliminary returns: both must be done before the 15th day of the month following the month of income. The preliminary tax is calculated at the following rates:
Taxable income, CNY | Tax rate, % |
Up to 20,000 | 20 |
20,000–50,000 | 30 |
Over 50,000 | 40 |
The final yearly return for IIT (filling instructions) must be submitted annually between March 1 and June 30 of the year following the reporting year. Learn more about the tax returns and the filing process here.
Tax on other personal income
A flat rate of 20% (monthly or per transaction) is applied to the remaining categories of income, including interest income, dividends, rental income, capital gains, and incidental income. The taxpayers are also required to submit annual IIT returns, just like those paying tax on employment income.
Charitable contributions can be claimed as deductions (same way as employment income). Rental income: if the amount received in a month is not more than CNY 4,000, a deduction of CNY 800 is allowed; if it exceeds CNY 4,000, a deduction equal to 20% of the gross receipt is allowed. Income from the transfer of property (capital gain): for sales of property, the original cost of the property and reasonable expenses incurred are deductible from the sales proceeds to arrive at the taxable income.
Social security (社会保 险) for freelancers who are individuals is different from that for regular employees; for the latter, their employer pays contributions to the pension and medical funds, as well as work-related injury insurance, unemployment insurance, maternity insurance, and housing contributions. Freelancers can make medical insurance and social security contributions on a voluntarily basis. The amount and terms depend on the region (to learn more about the contributions, see here).
Value-added tax / VAT (增 值税) is levied on individuals engaged in the sale or import of goods, provision of services, and sale of intangible or immovable property at a rate of 0% to 13%. Individuals are usually small-scale VAT payers, so they pay VAT at a rate of 3% or 1% if their monthly income is no more than CNY 100,000. Small-scale taxpayers are not allowed to claim input VAT credits for the VAT paid on their purchases. Learn more about VAT.
Individuals are exempt from VAT if the income derived falls below certain thresholds. Provincial-level tax bureaus are authorised to determine the exact thresholds within the following ranges:
Monthly sales of no more than CNY 100,000
Sales amount of no more than CNY 300 or CNY 500 per transaction/day
If the taxpayer exceeds these thresholds, they must register as a VAT payer in accordance with the rules of the given region.
Reporting. Small-scale taxpayers submit a special VAT return within 15 days from the end of the reporting period at a cadence of their choice: monthly or quarterly (once chosen, the period cannot be changed for one year).
The tax is paid within the period determined by the tax authority based on the amount of tax payable, or within the return submission deadline.
Sole proprietor
Sole proprietor (个人独 资企业) represents a special status for conducting business, wherein there is no legal separation between the owner and the business. In other words, the person is the sole owner of the business and bears complete liability for it. To carry out activities in this status, the taxpayer must register with the State Administration for Market Regulation (国家市 场监督管理总局); learn more here. Once registered, the sole proprietor receives an official business license (see samples here) and a seal. In addition, certain activities (medicine, law, and some others) require additional permits/licenses.
IMPORTANT! China prohibits foreign nationals from registering as sole proprietors.
Sole proprietors may be subject to fines, penalties, and even revocation of their business license if they:
Engage in any type of entrepreneurial activity that has not been approved by the state.
Do not have a business license and/or do not provide it upon request.
Carry out no activities within 6 months from the date of registration.
Fail to pay taxes on time.
Have made mistakes in their registration documents.
Accounting requirements for independent contractors in China
Sole proprietors have no obligation to submit/publish annual financial statements, but they are required to keep records of all income and expenses in accordance with the Accounting Standards for Small Businesses.
Sole proprietors are required to pay the following taxes and contributions:
Individual income tax / IIT (所得税) upon receipt of income from entrepreneurial activities, which is calculated at a progressive rate:
Taxable income, CNY | Tax rate, % |
Up to 30,000 | 5 |
30,001–90,000 | 10 |
90,001–300,000 | 20 |
300,001–500,000 | 30 |
Over 500,000 | 35 |
Taxable business income is income received within one calendar year net of costs, expenses, and losses incurred. Losses can be carried forward five years.
Sole proprietors are allowed to deduct expenditures that have actually been incurred and are related to the generation of income, as well as those allowed for comprehensive income.
Reporting is done in the form of advance tax returns that are submitted within 15 days after the end of each month or quarter, and the tax is paid in the form of advance payments within the same period. Sole proprietors are also required to submit annual tax returns by March 31 of the year following the reporting year.
Social security contributions (社会保 险) are not required for sole proprietors (same as with individuals), but they can pay them on a voluntary basis.
Value-added tax / VAT (增 值税), which is figured the same way and at the same rates as for individuals (0–13%), depending on the type of works/services.
Sole proprietors, similarly to organizations, can be recognized as general VAT payers based on their yearly sales:
Below CNY 5 million: The taxpayer must register as a small-scale VAT payer (same as individuals).
Over CNY 5 million: The taxpayer must register as a general VAT payer.
Unlike small-scale VAT payers, general VAT payers may claim their paid VAT amounts as deductions if they make use of fapiaos (发票). Learn more about deductions.
Tax returns and payment. Small-scale VAT payers have the same tax obligations as individuals. General VAT payers submit general VAT returns at their chosen cadence (monthly or quarterly) within 15 days from the end of the reporting period.
The tax is paid within the period determined by the tax authority based on the amount of tax payable, or within the return submission deadline.
Local taxes
In addition to general taxes that are dictated by the tax status, China levies local taxes:
Urban construction and maintenance tax is imposed on the amount of China's indirect taxes (i.e., VAT and consumption tax) payable by the taxpayer. It is charged at three different rates depending on the taxpayer's location: 7% for urban areas, 5% for county areas, and 1% for other areas.
Local educational and educational surtaxes are imposed at 2% and 3% respectively on the amount of China's indirect taxes (i.e., VAT and consumption tax) payable by the taxpayer.
Stamp tax is imposed on individuals who conclude taxable contracts and other documents. The stamp tax rates vary between 0.005% on loan contracts and finance leasing contracts to 0.1% for property leasing (other than finance lease) and property insurance contracts.
Additional information
Income received through Solar Staff is declared using certificates and invoices, and in accordance with the offer agreement.
If you have any questions, get in touch via the chat in your Solar Staff account or email us at [email protected].