Search found 2 matches

by phoenixandox
Tue Nov 09, 2021 10:57 pm
Forum: Forum 1. From Questions About ISS & Search to Anything and Everything About International Teaching
Topic: China New Tax Law
Replies: 25
Views: 33520

Re: China New Tax Law

inchinanow wrote:
>
> Since the teacher only is paid 360k CASH in their contract, this result in
> a yearly take home pay of 155k rmb or approximately 12750rmb/month after
> the full taxation is deducted. I just ran all the figures into a spread
> sheet and used the regulations as I understand them over many years.
>
> 680k - 56k/month
> 7500rmb tax free
> 49k taxable at 35%
>
> 17k tax/month - 200k rmb tax/year
>
> 360k rmb cash - 200k rmb rax = 160k/year
>
> or about 13k cash into the bank/month!
>


I'm afraid you are not calculating the tax correctly. The 49k per month is not entirely taxed at 35%. Most of it is taxed at lower bands and only the top part is taxed at 30% (the amount is not high enough to reach the 35% band). The correct calculation is shown in my Scenario 2 on the previous page.

Taxable income = 680,000/yr = 56,667/mth
Tax free allowances = 90,000/yr = 7,500/mth
Tax basis = 590,000/yr = 49,167/mth

Tax payable calculated across the different tax rate bands
(590,000 - 420,000) x 30% = 51,000
(420,000 - 300,000) x 25% = 30,000
(300,000 - 144,000) x 20% = 31,200
(144,000 - 36,000) x 10% = 10,800
(36,000 - 0) x 3% = 1,080
Total tax payable = 124,080/yr = 10,340/mth
Effective average tax rate = 124,080/680,000 = 18.2%

Gross cash = 360,000/yr = 30,000/mth
Net cash = 235,920/yr = 19,660/mth

Of course the net cash received at 19,660/mth is still significantly reduced (from original 26,410/mth), but it is nowhere near your incorrect figure of 12,750/mth.
by phoenixandox
Mon Nov 08, 2021 11:45 pm
Forum: Forum 1. From Questions About ISS & Search to Anything and Everything About International Teaching
Topic: China New Tax Law
Replies: 25
Views: 33520

Re: China New Tax Law

This is going to be a long and detailed post. Over the last few months there have been many vague comments on this site, but few specific details with clear numbers. All monetary amounts below are in RMB. I am going to go through calculations for 3 different scenarios below based on the example of a teacher who currently receives:
a) After tax cash salary of 12mth x 26,410 = 316,920 per year
b) Housing allowance of 12mth x 10,000 = 120,000 per year
c) One child's school place free tuition = 200,000 per year

For simplicity I am ignoring any other smaller allowances. Under the new tax rules effective from 1st Jan 2022:
a) Cash salary has always been taxable and will continue to be.
b) The tax free housing allowance for foreigners ends. They instead become eligible for a tax free rental deduction of 1,500/mth (the same as local employees)
c) The tax free tuition fee for foreigners ends. They instead become eligible for a tax free education deduction of 1,000/mth (the same as local employees)


Scenario 1 - Under current tax rules in 2021

Gross salary before tax = 12mth x 30,000 = 360,000 (taxable)
Housing allowance = 12mth x 10,000 = 120,000 (non-taxable)
Tuition allowance = 200,000 (non-taxable)

Taxable income = 360,000
Standard tax free allowance = 12mth x 5,000 = 60,000
Tax basis = 300,000

Tax payable calculated across the different tax rate bands
(300,000 - 144,000) x 20% = 31,200
(144,000 - 36,000) x 10% = 10,800
(36,000 - 0) x 3% = 1,080
Total tax payable = 43,080

Therefore net cash salary after tax = 360,000 - 43,080 = 316,920/year = 26,410/mth
Total package received by teacher = 316,920 cash + 120,000 housing + 200,000 tuition = 636,920
Total cost to the school = 360,000 gross salary + 120,000 housing + 200,000 tuition = 680,000


Scenario 2 - Under new tax rules in 2022, the teacher bears the full cost

Gross salary before tax = 12mth x 30,000 = 360,000 (taxable)
Housing allowance = 12mth x 10,000 = 120,000 (taxable)
Tuition allowance = 200,000 (taxable)

Taxable income = 680,000
Standard tax free allowance = 12mth x 5,000 = 60,000
New tax free rental deduction = 12mth x 1,500 = 18,000
New tax free education deduction = 12mth x 1,000 = 12,000
Tax basis = 590,000

Tax payable calculated across the different tax rate bands
(590,000 - 420,000) x 30% = 51,000
(420,000 - 300,000) x 25% = 30,000
(300,000 - 144,000) x 20% = 31,200
(144,000 - 36,000) x 10% = 10,800
(36,000 - 0) x 3% = 1,080
Total tax payable = 124,080

Therefore net cash salary after tax = 360,000 - 124,080 = 235,920/year = 19,660/mth
Total package received by teacher = 235,920 cash + 120,000 housing + 200,000 tuition = 555,920
Total cost to the school = 360,000 gross salary + 120,000 housing + 200,000 tuition = 680,000

==> The teacher's total package has reduced by 12.7%. Housing and tuition are unchanged, but there is a 25.6% decrease in the net cash received.
==> The overall cost to the school is unchanged


Scenario 3 - Under new tax rules in 2022, the school bears the full cost

Gross salary before tax = 12mth x 39,936 = 479,231 (taxable)
Housing allowance = 12mth x 10,000 = 120,000 (taxable)
Tuition allowance = 200,000 (taxable)

Taxable income = 799,231
Standard tax free allowance = 12mth x 5,000 = 60,000
New tax free rental deduction = 12mth x 1,500 = 18,000
New tax free education deduction = 12mth x 1,000 = 12,000
Tax basis = 709,231

Tax payable calculated across the different tax rate bands
(709,231 - 660,000) x 35% = 17,231
(660,000 - 420,000) x 30% = 72,000
(420,000 - 300,000) x 25% = 30,000
(300,000 - 144,000) x 20% = 31,200
(144,000 - 36,000) x 10% = 10,800
(36,000 - 0) x 3% = 1,080
Total tax payable = 162,311

Therefore net cash salary after tax = 479,231 - 162,311 = 316,920/year = 26,410/mth
Total package received by teacher = 316,920 cash + 120,000 housing + 200,000 tuition = 636,920
Total cost to the school = 479,231 gross salary + 120,000 housing + 200,000 tuition = 799,231

==> The teacher's total package and net cash received is unchanged.
==> The overall cost to the school has increased by 17.5%


Summary

The above calculations are just for general guidance. Each person's specific situation will obviously vary depending on actual salary, actual housing allowance, actual tuition fee, number of children, etc.
Some schools have said they will cover the entire cost of the changes for at least the next one or two years, which is clearly a major effect on their overall running costs. Presumably some other schools will try to share the cost part each between the school and the teacher.