I've been trying to work out exactly how taxes in China apply to me. Searching online has been pretty fruitless -- most of the sites are either hopelessly out of date and provide incorrect information. I've managed to locate some information from two reputable sources -- PWC and Deloitte & Touche. However, they both provide contradictory information!

One says (no web link sorry):

Foreign source income of foreign taxpayers who are not subject to IIT on their worldwide income (i.e., those who have not resided more than 5 consecutive full years in China) can exclude their income from IIT. The old 5 year rule...

The other referenced at http://www.pwchk.com/home/eng/chinatax_ ... ecial.html
is pretty clear that income from contracts/salaries from OUTSIDE china must have tax applied.

Anyone have any insights?

Here are some links to the actual tax regulations -- unfortunately, my chinese isn't good enough to read such complicated stuff

http://www.csj.sh.gov.cn/gb/csj/csfg/sw ... 23831.html
http://www.csj.sh.gov.cn/gb/csj/csgg/sw ... 24482.html
http://www.csj.sh.gov.cn/gb/csj/csfg/sw ... 23972.html
http://www.csj.sh.gov.cn/gb/csj/csfg/sw ... 24472.html
http://www.csj.sh.gov.cn/gb/csj/smcsljl/12w/index.html

I assume you only mean taxes you pay here since you did not mention your home country tax liability.

Currently, and that can change without notice, you do not have to pay taxes to China on any foreign earned income or any income you earn when you are not in China. You are correct that if you live here more than 5 years then you must pay tax on all income regardless of where it was earned. Also currently if you leave for 3 consecutive months then the clock gets reset to zero and the 5 year period starts again upon your return.

So if you work for a foregin firm and travel a lot keep very good records of your travels since you don't have to pay taxes on that income.

Thanks for the response. I also mis-read part of the PWC link I sent earlier. Specifically it says:

On the other hand, the following categories of income appear to be excluded from the scope of Circular 162:

....

2. Income sourced from outside of China derived by an individual who has stayed in China for more than one full year but less than five full years; and

This appears to mean that income sourced outside of china is non-taxable assuming that you inside the 5 year rule.

But if we earn salary here we have to pay annual income tax, right? Is there anything tax deductible e.g. insurance policy, investment, etc?