China New Tax Law

inchinanow
Posts: 16
Joined: Tue Oct 19, 2021 6:20 am

Re: China New Tax Law

Post by inchinanow »

Should note that the 13k rmb/month in the bank is after the rent payment, still doesn't make it look any better.
phoenixandox
Posts: 2
Joined: Fri Nov 05, 2021 4:57 am

Re: China New Tax Law

Post by phoenixandox »

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.
inchinanow
Posts: 16
Joined: Tue Oct 19, 2021 6:20 am

Re: China New Tax Law

Post by inchinanow »

I did try to explain that the figure I calculated was after the rent has been paid. The renal allowance ends up in your landlords pocket and so I did not include it in my calculations. If fact you may have to dig into the 13k/per month to cover the loss of rental money due to the changes, your land lord is not going to take a cut in rent.

The local tax office in Shanghai does not use the incremental tax bands, they just work out the monthly average and use that to make their deductions. At the end of the year you use the tax app on your mobile to claim back at tax refund.

We only have one payday left now before January! Only then can we be sure what is going to happen.
PsyGuy
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Joined: Wed Oct 12, 2011 9:51 am
Location: Northern Europe

Discussion

Post by PsyGuy »

ISs could provide tax relief and absorb the tax on tuition/fees. Yes it would create more tax liability but it would be a smaller amount of tax. While timing could possibly be a challenge; if the IS pays the 25% of a USD$80K tuition/fee waiver/place, tax on that is USD$20K, but then if the IT pays the 25% on that USD$20K its only USD$5K. The USD$20K would be very difficult to manage as that would be around 4 months full salary. USD$5K though is manageable over the course of a year.
inchinanow
Posts: 16
Joined: Tue Oct 19, 2021 6:20 am

Re: China New Tax Law

Post by inchinanow »

I have it confirmed from teachers at a couple of the franchise international schools in Shanghai that there are plans to "absorb" the taxation on tuition fees for the remainder of the year and this year only.

Maybe the schools will send out "wechat" payments to cover the additional taxation to hide it from the taxation!
PsyGuy
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Location: Northern Europe

Discussion

Post by PsyGuy »

China can and does monitor Wechat remittances.
Whether those plans actually happen remains to be seen. Ive heard variations that ISs will cover the additional tax for the rest of this year but only if the IT renews.
inchinanow
Posts: 16
Joined: Tue Oct 19, 2021 6:20 am

Re: China New Tax Law

Post by inchinanow »

This is the best description yet I have read that explains the new tax regulations. It has some quiet simple examples of how the new regulations may unfold. The idea of grouping all your income into one lump some and calculating all your taxation from there is alarming. It also highlights why schools will be reluctant to take on a teachers additional taxation.

https://www.swisscham.org/wp-content/up ... ontagi.pdf
PsyGuy
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Location: Northern Europe

Discussion

Post by PsyGuy »

I didnt really find it very useful, the vast majority of ITs make well under the 1M in salary the paper used. It also used a tuition value thats more in the middle of the tuition scale than one that represents a 1st tier IS.
inchinanow
Posts: 16
Joined: Tue Oct 19, 2021 6:20 am

Re: China New Tax Law

Post by inchinanow »

True not many teachers will surpass the 960k consolidated income mark for the 45% tax band. However it will be very easy for a teachers combined salary and benefits to jump from 25% tax band(under 420k or 35k/month) into the 35% taxation, this is where I calculate I will be after the 1st January.

The 30% tax band starts at 420k and the 35% starts at 660k and for every thing you earn that is the taxation deduction.

A salary of 30k/month and rent allowance at 8k/month already pushes you into 30% tax band, plus two kids at 160k tuition fees puts you over the 35% threshold.
inchinanow
Posts: 16
Joined: Tue Oct 19, 2021 6:20 am

Re: China New Tax Law

Post by inchinanow »

Just had it confirmed from several different sources that the Rent/Housing Allowance from the 1st of January will be combined to generate the monthly income for taxation purposes. I know one school that has basically stated to the taxman that the tuition fees for teaching staff has already been paid IN FULL UP FRONT so with nothing can be taxed from January. Nothing known about how this will continue for the next academic year starting in September.

If your combined salary/Allowance add up to 52920rmb /month you will move from the 25 to 30% tax band.

Uncertainty still applies as to how the new taxation rates will be calculated, but the method a graduated steps in differing tax percentage the more you earn looks likely.
PsyGuy
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Location: Northern Europe

Comment

Post by PsyGuy »

@inchinanow

I dont disagree with your ana1ysis of the issue, I disagree with your position on the quality of the paper you referenced.
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