Thinking about Moving to China? Taxes & Banking

Matt | Banking in China,Taxes in China | Friday, June 10th, 2011
Continuing on answering the questions a reader posted, thanks again by the way, here are a few more of my thoughts. These are my thoughts and opinions from my experience of living in Beijing for four years.  I hope I can give some insight into the situation although you should continue to do other research.
One of the most important things that I can recommend before moving to China, or to any country, is to do your research.  Make sure you have a good understanding of what you are getting yourself into and are asking as many questions as you can.  Then at some point you will have to make a decision, without knowing how everything will work out.  Finally, if you are flexible enough with “open eyes, an open mind, and an open heart,” you will end up in a better place.
How are income taxes handled in China?
Income taxes in China are deducted from your paycheque every month as source deductions.  From a nice little handout a former employer gave me, here is the breakdown of how income tax works for foreigners.  I received this in 2006 and so things may have changed now, but this should give you an idea and things to think about.  The tax you pay is a sliding scale ranging from 5% to 45%, but generally speaking it is quite low.  I will give you the brackets and then show you an example.
Full-Time Employees
Tax Bracket     Monthly Income     Tax %     Tax Rebates
1                         Up to 400 RMB             5%              0
2                         500-2,000                   10%            25
3                         2,000-5,000                15%            125
4                         5,000-20,000              20%            375
5                         20,000-40,000            25%            1375
6                         40,000-60,000            30%            3375
7                         60,000-80,000            35%            6375
8                         80,000-100,000          40%            10375
9                         100,000+                    45%            15375
  • Foreigners first 4,800 RMB is tax free.
I have given a lot of big numbers, so I will walk through an example of one of my old pay cheques to show that the tax rate we pay is actually quite low.
While working as a PT trainer one month I earned the following
10,782 RMB gross salary
-4,800
5,982 RMB taxable income
x 20% (this is the only bracket I was in while in China!)
1196.4 taxable income before rebate
-375 tax rebate in this tax bracket
821.4 tax actually deducted from my salary
7.6% (821.4/10,782) actually tax rate for the month
9960.6 RMB amount deposited in my bank.
Overall, I found the tax rate quite low as a full-time foreign worker.  Additionally, you can reduce your taxable income with a Meal Allowance for business purposes, ie restaurant recipes, but no more than 4,000 RMB/month.  I never did this, although you may see a lot of locals getting official receipts at restaurants and from taxis likely to reduce their taxes payable.
Another thing to note is that if you live in China for 5+ years continuously you are classified a Chinese Citizen for tax purposes and you are only entitled to the rate of 1600 RMB not the 4800 RMB for Foreigners.  Therefore, it would be wise to leave China for more than a month (30 days) every 5 years.
Finally, if you are earning in the higher tax brackets it would be wise to talk to a professional, tax accountant and lawyer, to help you understand what your options are.  Fortunately, or unfortunately, I never got to that level.
Would you explain further any online banking and money transfers steps to the USA?
As for banking in China and setting up direct deposits, I wrote an earlier post here about how to do this.  I was able to wire money from my ICBC account to my account in Canada regularly.  Now I wasn’t sending large sums ($500-$1000 CAD/month), but for most people I think this would be the case.  If you want to send back a lot more money, again I suggest to talk with a good banker, lawyer or business owner who is already doing this.  Best of luck.

Banking in China – Stay connected to home

Matt | Banking in China,Working in China | Monday, April 14th, 2008

Banking in China can be a challenge to say the least. Most employees speak limited English and customer service is a very new concept here in China. But, I have recently discovered a relatively easy way to stay connected and pay bills in another country.

At first, I was worried about paying some of my bills back in Canada, like my accounting designation, or minor things. And when I asked around I heard some scary ideas of how to transfer money, “Go to the guy outside the bank give him 20,000RMB and he’ll exchange it for USD.” That thought wasn’t very appealing to me.

So I was quite excited when I was looking online at my bank Industrial and Commercial Bank of China (ICBC) and found out that I could transfer money out of China to Canada.

You can transfer up to $500 USD per day to an overseas bank. (the website say $50,000, but I don’t know how you can do that. As a teacher you’ll probably never have that much anyways!) You’ll need your passport (which you need to do any banking in China). You will also need your account number you want to transfer to:

Institution number-Branch number-Account number

000-12345-8888888

If you aren’t sure your numbers you can call your bank back home (over Skype). If you already do bank transfers through ING you will be familiar with these numbers.

Plus you need the address of your bank in Canada or home country.

So, what I normally do is as follows.

  1. I get a ticket for the non-RMB business.
  2. Then get an Application for Funds Transfers (Overseas) and fill in all the above information.  Usually then the girls at the help desk send me to a table where a women helps me fill in the form and checks that I do it right.
  3. Then I go to the window and a teller fills in many forms and stamps, 30 minutes to 1 hour later I’m done.

The result?

Now that the Canadian dollar is higher than the USD I can send out $495.00

My Canadian bank charges me a fee for this remittance $25.00

My net amount that I can transfer at one time is $470.00

On the Chinese side my last transaction also cost RMB 61 (about $8.00)

So, while this may not be the cheapest option it is one option to send money back to Canada. When I learned I was able to this it put my personal financial situation more at ease. Now my challenge is earning and saving more money and sending more back to Canada.

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