One Time Annual Bonus in China
In this article, we provide key insights regarding the one-time annual bonus in China:
- Tax in the one-time annual bonus
- Method of calculating tax on the gross one-time annual bonus
- The net one-time annual bonus
If you have your own business in China, at some point in time, you may feel the need to hire local Chinese personnel. A one-time annual bonus is a bonus that is distributed by employers to employees once annually on the basis of annual business performance and the annual business performance.
Here HROne has concluded some important tips regarding the annual bonus in China. All the below information would be beneficial for your China payroll team and employer to calculate the annual bonus as well as the relevant individual income tax that employee shall contribute for their annual bonus.
Tax on the one-time annual bonus
The one-time annual bonus is considered as a monthly salary for an additional month and the tax applied on it shall be paid by the tax withholding agent. In a fiscal tax year, this method of taxation can only be applied once for each taxpayer. If an employee is entitled to receive any additional bonus such as attendance award, overtime bonus, improvement award, it shall be combined with his/her salary income in the same month for payment of individual income tax in accordance with the tax laws.
Methods of calculating tax on the gross one-time annual bonus
The annual one-time bonus obtained by a taxpayer shall be considered as a separate one-month salary with standard salary taxes applicable. To know more about individual standard tax in China, please click here. Formula: Tax payable on year-end bonus = Taxable annual bonus amount x Applicable tax rate ‘ Quick deduction For example: the applicable tax rate for a RMB 120,000 bonus is 25 percent (RMB 120,000 ‘ 12 months = RMB 10,000).
Following are the methods of calculating tax on the gross one-time annual bonus: By dividing 12 months the one-time annual bonus received by the employee in that specific month, and determining the applicable tax rate and the quick deduction according to the quotient.
Calculating the tax payable on the employee’s one-time annual bonus obtained in the very month according to the applicable tax rate and the quick deduction determined under item 1, with the formula of calculation as follows:
- If that month’s salary is equal to or higher than the deductible income as stipulated by the government, then: taxes payable = one-time annual bonus x applicable tax rate – quick deductions.
- If that month’s salary is lower than the deductible income as stipulated by the government, then: taxes payable = (one-time annual bonus – the balance between that month’s salary and the deductible income) x applicable tax rate – quick deductions.
The net one-time annual bonus
The net annual bonus can be converted into a gross annual bonus and then be taxed accordingly. The method for converting the net annual bonus to gross annual bonus:
Dividing the net annual bonus by 12, apply the relevant applicable tax rate A and the quick deduction A
Gross annual bonus = (net annual bonus ‘ quick deduction A) divided by (1-applicable tax rate A)
Based on the result of dividing the gross annual bonus by 12, apply the relevant tax rate B and the quick deduction B
Taxes payable = gross annual bonus x applicable tax rate B ‘ quick deduction B.
How HROne can be beneficial to your business
HROne’s service offering ranges from cost-effective payroll management solutions, handling the total employee benefits for your company, handling relocation and visa for your company’s expatriate employees, to Employee Leasing/Talent dispatching services for your Representative Office (RO).