{"id":2766,"date":"2025-12-19T03:10:28","date_gmt":"2025-12-19T03:10:28","guid":{"rendered":"https:\/\/msadvisory.com\/?p=2766"},"modified":"2026-04-20T11:32:33","modified_gmt":"2026-04-20T11:32:33","slug":"calculate-taxes-annual-bonus-china","status":"publish","type":"post","link":"https:\/\/msadvisory.com\/calculate-taxes-annual-bonus-china\/","title":{"rendered":"Annual Bonus in China"},"content":{"rendered":"\t\t
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As in many other countries, it is common practice for employers to provide their employees with an annual bonus based on their annual performance.<\/p>

When considering the appropriate amount of the annual bonus it is important for employers to understand the calculation of Individual Income Tax (IIT) on bonuses, particularly considering regulatory changes to China\u2019s Individual Income Tax framework in recent years (for a complete overview of China\u2019s IIT framework, please read our full article on Individual Income Tax in China<\/a>).\u00a0<\/p>

Here we explain how the taxing of individual bonuses works in China.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Applicable Legislation to Calculate Tax on Annual Bonuses in China<\/h2>

China\u2019s Individual Income Tax Law,\u00a0and the subsequent clarifications from the Chinese Ministry of Finance (MoF) and State Administration of Taxation (SAT) of March 14th<\/sup>\u00a02019, introduced the policies determining the taxation of annual bonuses in China.<\/p>

The Chinese Individual Income Tax Law set out a 3-year transition policy from January 1st<\/sup>\u00a02019 until December 31st<\/sup> 2021, during which the former preferential IIT treatment for annual bonuses (Guoshuifa (2005) No. 9) would remain applicable. In essence, this policy stipulated that a beneficial tax rate would be applied for a one-time annual bonus, meaning this preferential tax rate can only be applied once per calendar year for each individual taxpayer.<\/p>

The period of the preferential policy which was set to come to an end as of 31 December 2021, but has subsequently been extended several times. It is now due to come to an end on 31 December 2027<\/strong>.<\/p>

The extension of the favorable policy on bonuses is only applicable to the 1st bonus received in a year. Should an employee be entitled to receive an additional 2nd bonus throughout the year, the amount of such an additional bonus will also be added to the employee\u2019s monthly taxable income and will be taxed together with their regular monthly income according to the Cumulative Withholding Tax Calculation Method.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Calculating Individual Income Tax on Annual Bonus in China<\/h2>

The first step in order to determine the tax liability over an annual bonus paid in China is to establish whether the individual receiving the bonus is a tax resident or a non-resident, as a different tax calculation will be applicable in accordance with the aforementioned clarifications from the MoF and SAT.<\/p>

As per Chinese IIT legislation, an individual is considered a tax resident of China if the individual has resided in the country for 183 days or more during a single calendar year. Consequently, an individual who has resided in China for less than 183 days in a calendar year is considered a non-resident.<\/p>

The annual tax payable for an individual will now consist of:<\/p>

(Gross comprehensive yearly income including the annual bonus \u2013 yearly social security contributions \u2013 standard deductions \u2013 other relevant deductions) * the relevant tax rate \u2013 quick deduction = Annual tax payable<\/em><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t

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Practical Example of How the Policy Change Affects Salary<\/h2>

Example 1:<\/h4>