China: Wealth Management
Tax System and Wealth
This page was last updated on 1 August 2019.
Permanent residents are subject to tax on their worldwide income. Non-residents and residents who have not yet become permanent (the first five years of residence) pay tax on their China-sourced income.
Income is defined very broadly though it excludes interest on bank deposits. There are personal allowances which are higher for foreign individuals. Tax rates vary from 5% to a maximum of 45% on monthly earned income over RMB80,000. There is capital gains tax of 20%, and the same rate applies to many types of unearned income. Employers operate a 'PAYE' withholding tax system for tax on salaries and social security contributions, which bear more heavily on employers (20% of payroll) than on employees (7%). Withholding tax of 10% applies to dividends, interest, royalties and capital gains.
Clearly this is a taxation environment that does not appeal to thrifty richer people. There are plenty of rich people in China now - more than 900,000 US dollar millionaires, and more billionaires than any other country except the USA.
Although the rapid expansion of China's economy and especially its international links have left the authorities struggling to keep up in terms of tax collection, and have presented richer people with multiple opportunities to transfer or create wealth abroad rather than in China, there is still considerable and growing demand from within the country for legitimate channels to secrete wealth away from the government.