Individual Banking and Income Tax in China: How does it work?
This blog detailed the answer to a frequently asked question about Money:
Which bank should I choose to open a bank account in mainland China? Which bank is the best for expats?
How do I pay Income Tax in China?
How do I transfer money back to my home country?
Managing Your Finances as an Expat in China
Living in China as an expat offers a unique blend of exciting opportunities and challenges, especially when it comes to managing your finances. Whether you're new to the country or have been here for a while, navigating the Chinese financial system can seem daunting, particularly if you're not fluent in Mandarin. This guide will walk you through the essentials of managing your finances in China, including opening a bank account, paying income tax, and transferring money back to your home country.
Part 1: Opening a Bank Account
Opening a bank account in China is a critical first step for managing your finances efficiently. Here’s a step-by-step guide to help you get started:
Required Documents:
Passport: Ensure it's valid and has your visa.
Work Permit or Residence Permit: Proof of your legal stay in China.
A real-name authenticated mobile phone number: It is better to bring your phone bill Fapiao with your name and phone number on it issued by a service operated like Unicom, Telecom, or China Mobile.
Proof of Address: This can be a Temporary Resident Form issued by the Police.
Employer’s Certificate/Labor Contract/Letter of Admission: Banks sometimes require employment or student status confirmation. If you are a dependent spouse, you must present your partner’s job contract and marriage certificate to the bank to prove you are the applicant's spouse.
Choosing a Bank:
Large State-Owned Banks: ICBC, Bank of China, and China Construction Bank are popular choices. They have extensive branch networks and offer a range of services.
Foreign-Friendly Banks: HSBC and Standard Chartered offer services tailored for expats. However, I have seen these banks’ service often interrupted for maintenance during the weekend. Their scale and support may not be as good as those of Chinese banks, and surprisingly, the staff at HSBC don’t speak English!
I personally recommend CMB (China Merchants Bank). Their services are very easy to use, and the online banking app is also available in English.
Process:
Visit the Bank: Go to the branch with all your documents. Early mornings are best to avoid long queues. Some branches are less busy than others.
Complete Forms: Fill out the account opening form with your details.
Verification: The bank will verify your documents and may take your photo. Some banks required a quick declaration and many signatures later.
Account Setup: Once approved, you'll receive your bank card, which you can use for transactions and withdrawals.
Tips:
Language: Bring a Chinese-speaking friend or me as English services might be limited; if not, you can try the translation app, but that will be time-consuming.
Time: The fastest I have done the process is 35 minutes, and the longest queue time is 2 hours. So, set aside enough time to process.
Cash: Bring a little bit of cash with you to deposit into the account to start
Online Banking: Set up online banking to ease transactions and manage your account.
Digital Payment: Once you receive your bank card, you can set up your digital payment tools: WeChat Pay and AliPay!
Part 2: Individual Income Tax in China
If you understand the process, paying income tax in China is mandatory and straightforward. Here’s how you can manage your tax obligations:
Understanding Tax Residency:
Resident Taxpayer: If you reside in China for 183 days or more within a tax year.
Non-Resident Taxpayer: If you stay in China for less than 183 days.
Tax Rates:
Income tax rates in China are progressive, ranging from 3% to 45%. The rates depend on your annual income bracket. Some examples below:
CNY 300,000 - 420,000 25%
CNY 420,000 - 660,000 30%
CNY 660,000 - 960,000 35%
CNY 960,001 and above 45%
Monthly Deductions: Most employers in China deduct income tax from your salary each month and remit it to the tax authorities.
Annual Tax Return: If you have multiple sources of income or your annual income is more than 120,000 RMB, you need to file an annual tax return using the app called 个人所得税, which is usually due by March 31 of the following year. You may apply for special deductions for housing rent, education, children’s care and education, support of elderly parents, etc. You can refer to the details listed here
Using a Tax Agent: If you’re unsure about the process, consider hiring a tax agent. They can help ensure you’re compliant with local laws and may assist in optimizing your tax obligations.
Tips
Tax ID: Know your company's registered tax district and visit the Tax office once to activate your tax ID. The tax ID enables you to use the app mentioned - 个人所得税
Tax Cycle: China's tax year runs from 1 January to 31 December, but tax filing is generally administered every month, and individuals should use the app to file their annual tax return from March of the following year.
Tax Records: The app allows you to download Tax records and save it to your phone. If you send money outside of China, these records are needed to prove your income is taxed.
Tax Refund: Once you file your tax return using the app, with a few clicks and a special deduction applied, if the amount of prepaid tax is greater than the final tax payable in the last year, you may get your tax refunded to your bank from the tax bureau! I successfully claimed and helped other expats receive a tax refund.
Part 3: Transferring Money Back to Home Countries
Sending money back home is a common need for many expats. Here are the main options available:
Bank Transfers
Most Chinese banks offer international wire transfer services. Here’s how to do it:
Visit the Bank: Go to your bank and request an international transfer.
Provide Details: You will need the SWIFT code of the recipient’s bank, account number, and full name.
Fees: Be aware of the fees, which can be substantial. Check with your bank for specific rates.
Don’t want to go and wait in the bank?
Introducing SKY REMIT - An online Money Transfer Services
Other means that I have heard of but you can omit:
TransferWise (Wise): Real exchange rates, but still higher fee than Sky Remit.
PayPal: This can be used if both you and the recipient have accounts, though fees can be high -SUPER HIGH!
Currency Exchange
When transferring money, consider the exchange rates and fees. Some banks and services offer better rates than others, so it pays to shop around.
Documentation
To transfer money out LEGALLY, you will need to provide additional documentation to comply with Chinese regulations no matter which methods you choose above. They are:
Proof of Income: Salary slips or employment contract.
Tax Records: Proof that taxes have been paid on the money being transferred, which you can download from the 个人所得税 IIT APP mentioned in Part 2.
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Last but not least - Don’t get scammed!
Part 4: Avoid Scams
Unfortunately, online frauds affect not only locals but also expats all over the world. I have heard many stories of scammers weaving scripted scenarios and swindling the victims, sometimes a group of victims, to trick them into transferring money to unknown accounts or accounts you think might be legit, but they are not. Common excuses: Currency Exchange, Housing Deposit, Bailing a friend, Romance scams. The scammers mostly operate outside of China.
Verify Identity:
Always confirm a person's identity before sending money or sharing sensitive information. Ideally, verify through a phone or video call, or better yet, a personal meeting. Don’t transfer money to anyone you have never met in person!
Be Cautious of Urgency:
Be wary of anyone who urges you to take immediate action, especially over WeChat or other messaging apps. Scammers often create a sense of urgency to pressure you into making hasty decisions.
Screen Contacts on WeChat:
Only add people you know on WeChat. Be cautious of contacts with no Moments (posts) visible to you, as this can be a red flag for fake or scam accounts.
And if you or your friends, colleagues in China get scammed, CALL THE POLICE 110, they will help after you provide all the evidence, and there is a chance the money can be recovered from scammers as everything is traceable within China.
I have experience dealing with the above for my time living in Mainland China, and I helped expats sort out the above-mentioned aspects.
I hope this article helps. If you have any questions, please leave comments below or share your experiences with tax and banking in China.
Thank you for reading!