China has tax treaties with the US as well as other countries that are set up to prevent individuals from being double taxed. However, the treaties are also designed to help each country catch the cheats. Penalties for tax evasion are far more severe in China than in the United States. For example, in the US you will get a slap on the wrist and a fine, but in China you will earn yourself a free trip behind bars. Since the spring of 2006, the tax bureau has been connected with the immigration bureau, so if you are going to get caught, its more than likely to be at the airport, just as you thought you were going to get away with it. Say goodbye to your friends and family, because it may be a long time before you see them again.
As an expat in China, you might be required to pay taxes both in China and in your home country, especially for atypical income such as property taxes and royalties. Ask your employee to help sort it out before accepting the job. Taxes can be very complex however, and the more you try to play it by the book, the high your bill will be.
The Individual Income Tax in the mainland tax just like in the US. The first 4000RMB isn’t taxed, but for wages up to 20,000 RMB you are taxed at a marginal rate of 20%. for wages 20,000RMB to 40,000RMB, the tax rate is 25%, and so on. China’s ITT tax rates are among the highest in Asia. The rates are lower for people who are classified as “individual entrepreneurs”, and tax brackets are higher in high cost cities such as Shanghai. Some expats split their work between two schools and keep their earning below 4000 RMB with each employer.
Unlike the United States where income taxes are paid once a year, in China they are paid each month. Employers typically handle the tax burden for the employees. They will withhold the tax from your salary and pay the state administration for you so you never have to personally file your own taxes.
However, since tax laws in China are constantly changing(calling it reform), and tax evaders face severe penalties, we suggest you consult a tax expert if your situation is complex. Companies such as Deloitte offer all sorts of legal and financial consulting, including tax advice, but as always, its best to start with your company’s HR department.