IIT Deductions and Tax Benefits for Foreigners in China: The 2026 Guide

Updated November 2026

Two foreigners on the same salary can pay tax that differs by tens of thousands of yuan. The rate is identical. What differs is what they subtract before the rate applies. Most expatriates claim one or two items and leave the rest on the table, usually because nobody told them the list had grown.

1. The short answer

China lets a resident subtract five things before tax. There is a 60,000 yuan basic deduction and the social insurance you pay. On top sit seven special additional deductions, other permitted items such as annuities and private pensions, and charitable gifts. Non-residents get only the first, spread monthly as 5,000 yuan.

The seven special additional deductions are where the money sits. After the 2023 increase they run from 400 yuan a month for continuing education to 3,000 yuan a month for supporting parents. A family with two children, a mortgage and elderly parents can shelter 7,000 yuan a month before the rate touches anything.

Two separate elections sit on top of that: the foreign-national allowances, and the annual bonus method. Both expire on 31 December 2027, and both are worth modelling before you choose.

2. The order of subtraction

Sequence matters, because each step shrinks the number the next step works on. Start with gross wages and remove the 60,000 yuan annual basic deduction. Social insurance and housing fund contributions come next, which you pay anyway and which carry no cap beyond the contribution ceiling. After that come the special additional deductions, then annuities, commercial health insurance and private pension contributions. Charitable gifts come last.

What remains is taxable income, and the table in the residency guide applies to it. The practical effect is that a deduction is worth your marginal rate. At 45 per cent, 12,000 yuan of private pension contributions saves 5,400 yuan of tax. At 10 per cent, the same contribution saves 1,200. Deductions are worth most to the people who need them least, which is why high earners should claim every item they can document.

Social insurance is the quiet one. Employers and employees both contribute, and the employee share comes off before tax. On a 40,000 yuan monthly salary in Shanghai, that share can approach 4,000 yuan a month, which shelters 48,000 yuan a year at your marginal rate. Nobody advertises it because nobody has to claim it: payroll does it automatically, provided you are registered in the system.

3. The seven deductions, item by item

Each item has its own eligibility test, its own evidence and its own allocation rule. The standards below took effect on 1 January 2023 and remain the published figures.

Children’s education. 2,000 yuan a month for each child, from age three until the end of higher education, including vocational college, undergraduate and postgraduate study. Parents choose: 50 per cent each, or 100 per cent to one. The choice is fixed for the tax year, so pick the parent in the higher bracket.

Infant care. 2,000 yuan a month for each child under three, added in 2023 and often missed by parents who filed before then. Same allocation rule as children’s education.

Continuing education. 400 yuan a month while enrolled in a degree programme, for a maximum of 48 months, or 3,600 yuan in the year you obtain a recognised professional qualification. The two do not stack for the same year, and the certificate route requires the document itself.

Serious illness. The self-paid portion of medical costs above 15,000 yuan, capped at 80,000 yuan a year, for yourself, a spouse or a dependent child. This one settles at the annual reconciliation rather than in monthly withholding, because nobody knows the annual total in January.

4. Housing: one claim, not two

Mortgage interest and rent are alternatives. Claim one, not both, and not one per property. Interest runs at 1,000 yuan a month for the first home loan, for up to 240 months, claimed by one spouse only. Rent runs at 1,500 yuan in municipalities, provincial capitals and Shenzhen, 1,100 yuan in other cities above one million residents, and 800 yuan below that.

The rent deduction has a condition that catches foreign tenants: you must have no home of your own in the city where you work. Own a flat in Shanghai and rent in Beijing, and the Beijing rent still qualifies. Own and rent in the same city, and it does not.

Landlords resist issuing invoices, and the app asks for a lease. A signed contract in your name, plus payment records, is normally enough. What fails is a company lease in the employer’s name with the rent paid directly by the employer, because then the housing is a benefit, not your cost.

5. Parents, and the allocation fights

Support for parents aged 60 or over runs at 3,000 yuan a month for an only child. With siblings, the total stays at 3,000 and each sibling claims at most 1,500, split by agreement or equally. Grandparents qualify where their own children are no longer alive.

Two questions arrive every year. The first is whether parents living abroad count. They do, and the test is age, not residence. The second is what evidence the app wants. It asks for name, ID number and relationship, and the tax authority can request supporting documents later, so keep birth certificates and household records.

Where a couple both work in China, allocation is a planning decision, not a formality. Put the children’s deduction with the higher earner, and split the parents’ deduction to keep both of you below a bracket edge. Revisit it each December, because a promotion in March changes the answer.

6. The foreign-national election: allowances or deductions

Foreign nationals have a second route. Eight categories of allowance may be paid tax-free on top of salary: housing, meals, relocation, laundry, business travel, home leave, language training and children’s education. Each must be reasonable, documented and paid as reimbursement rather than cash in lieu.

You choose between that package and the special additional deductions. You cannot take both for the same expense. The election is annual, and the policy runs to 31 December 2027.

The mistake to avoid is claiming the allowance for housing and the rent deduction for the same flat. The tax authority cross-checks the two, and the assessment that follows treats the whole election as unreliable rather than trimming one item.

7. Annual bonus: which method costs less

One annual payment may go through the separate method described in the residency guide, or be merged into comprehensive income. The separate method divides the bonus by twelve, finds the bracket, and taxes the whole bonus at that rate less a quick deduction. Merging adds the bonus to salary and applies the annual table once.

Take a resident with 240,000 yuan of taxable salary and a 360,000 yuan bonus. Separate: 31,080 on the salary, plus 87,340 on the bonus, so 118,420 yuan. Merged: 600,000 yuan taxed at the annual table, which gives 127,080 yuan. Separate wins by 8,660 yuan.

Now take a part-year employee who earned 50,000 yuan of taxable salary and received a 60,000 yuan bonus. Separate: no salary tax at all, plus 5,790 on the bonus. Merged: 110,000 yuan falls back under the 60,000 deduction line, and the tax is 2,480 yuan. Merging wins by 3,310 yuan, because the unused basic deduction soaks up the bonus.

The rule of thumb: merge when your salary is below the basic deduction, or when your deductions are large relative to income. Keep them separate when salary already fills the higher brackets, because the bonus then gets its own run up the scale.

8. The smaller reliefs that add up

A private pension contribution of up to 12,000 yuan a year is deductible, and the pot is taxed at 3 per cent on withdrawal rather than at your marginal rate. The scheme opened nationwide in December 2024, so a foreign resident with a Chinese bank account can use it. Enterprise annuity contributions are deductible within 4 per cent of the wage base, and qualifying commercial health insurance gives 2,400 yuan a year.

Charitable gifts to qualified organisations are deductible up to 30 per cent of taxable income, and some causes carry a 100 per cent allowance. Keep the receipt, which must show your name and the organisation’s registration number.

Severance is a separate regime rather than a deduction. Compensation on termination is exempt up to three times the local average annual wage, and the excess is taxed separately rather than added to salary. The mechanics are in the severance note. If you are leaving, the timing of that payment across tax years matters as much as the amount.

9. Treaty relief and the Greater Bay Area

Residents who pay tax abroad on the same income can credit the foreign tax against the Chinese charge, up to the Chinese tax attributable to that income. The State Taxation Administration’s English portal publishes the treaty network and the credit rules behind it. The credit is claimed in the annual filing, and it requires a foreign tax payment certificate. Treaties also decide which country taxes a particular item first, which is why the tie-breaker in the residency guide matters before any deduction does.

In the nine Greater Bay Area cities, a subsidy covers the gap between the mainland tax actually paid and what the same income would have borne in Hong Kong. It is an award rather than a deduction, and it arrives after the tax is paid. The eligibility rules and the application window are in the GBA incentive note.

Sending money out afterwards is a separate exercise with its own paperwork. The tax paid is part of the evidence trail, as explained in remitting salary home.

10. How to claim, and what to keep

Claims go through the Individual Income Tax app, under the special additional deduction section, and the same forms sit on the 12366 taxpayer service platform. You select the item, enter the details, and choose whether the employer withholds monthly or you settle at the annual reconciliation. Most employees choose withholding, because it puts cash in the salary every month rather than a refund in June.

Registration is the first hurdle. A foreign passport works, but the app expects a real-name record tied to your residence permit, and the name must match the payroll record character for character. When the two differ, the deduction silently fails to apply, and the payslip looks normal.

Keep evidence for five years: leases, mortgage statements, school invoices, birth certificates, medical receipts and the foreign tax certificates. The tax authority does not audit every claim, but it does sample them, and an unsupported deduction is recovered with late fees. Deadlines and the reconciliation window are in the payment timing guide.

If you are unsure whether you are a resident at all, start with the residence and calculation guide. Deductions only matter once residence is settled, and the two elections described here assume you are resident. Non-residents face a different computation, set out in the non-resident note.

Frequently asked questions