Self-Employed Tax in China

China's Individual Income Tax (IIT) law carves out a separate income category -- "income from business operations" -- that applies specifically to self-employed individuals operating as getihu (个体工商户, individual industrial and commercial households) or as partners in sole-proprietorship enterprises. This income is taxed on a progressive scale of 5 to 35 percent that differs structurally from the 3 to 45 percent scale that applies to wages, personal services, author's remuneration, and royalties. Self-employed operators also face a simplified-rate Value Added Tax (VAT) obligation, compulsory e-fapiao (fully digitalized electronic invoice) requirements, additional surtaxes, and access to voluntary social insurance schemes. This page sets out the current framework as of June 2026. See also the China country overview for the broader tax context. Given the complexity of these rules and frequent policy updates, consulting a qualified tax professional is the appropriate step for individual circumstances.

What IIT rate applies to self-employed business income in China?

Income that a getihu or sole-proprietorship enterprise derives from production and business operations is assessed under a five-bracket progressive scale, computed on an annual basis [SC1][SC2]. The standard annual basic deduction is CNY 60,000 (CNY 5,000 per month for advance-payment purposes), and allowable business expenses are deductible against gross receipts. Business losses may be carried forward for five years [SC3].

This 5 to 35 percent schedule is separate from the comprehensive-income schedule (3 to 45 percent) that covers wages, personal services, and royalties. A sole proprietor who also earns wages from a concurrent employment must keep the two income streams on their respective scales; the CNY 60,000 basic deduction cannot be double-claimed across both streams in the same year [SC3]. Tax on business income is prepaid monthly (due within 15 days after each month-end), with an annual reconciliation settled within three months of the calendar year-end [SC2].

How does the tax authority determine what income is taxable -- verified or approved collection?

China's tax law recognises two principal methods for computing the taxable income of a self-employed business operator [SC4][SC5].

Under the verified collection method (查账征收, cha zhang zheng shou), the operator maintains proper accounting books and records. Taxable income equals gross revenue minus allowable business expenses actually incurred. This method requires the getihu to keep statutory ledgers -- general ledgers, subsidiary ledgers, and cash journals -- supported by valid primary documents (invoices, receipts). It is the default where books are complete and accurate.

Under the approved (deemed) collection method (核定征收, he ding zheng shou), the tax authority determines taxable income where accounting books are absent, incomplete, or unverifiable. In practice the authority applies an industry-specific deemed-profit rate to the operator's reported gross revenue to arrive at a taxable income figure, and then applies the 5 to 35 percent progressive brackets to that figure. Deemed-profit rates vary by trade and locality -- commonly ranging from roughly 10 to 40 percent of revenue depending on the sector -- and are set by each provincial or municipal tax bureau based on STA guidance [SC5]. The approved-collection method also applies when an operator fails to file on time and does not respond to the tax authority's compliance order within the stipulated period.

The practical implication is that a getihu who cannot maintain proper books may end up taxed on a profit margin the authority imputes, rather than on actual net income. Where actual profit is lower than the deemed rate implies, it is generally in the operator's interest to maintain proper records and elect verified collection.

What VAT obligations apply to a self-employed getihu?

Getihu whose annual taxable sales do not exceed CNY 5 million are classified as small-scale VAT taxpayers under the VAT Law that took effect on 1 January 2026 [SC6][SC7]. Two relief layers apply:

Exemption threshold: From 1 January 2026 through 31 December 2027, small-scale taxpayers with monthly sales below CNY 100,000 (or quarterly sales below CNY 300,000) are fully exempt from VAT for that period [SC6][SC7]. Natural persons who engage in recurring business-like activities -- property rental, internet-platform earnings, or insurance agency services -- must aggregate their income monthly and apply the CNY 100,000 threshold on a cumulative basis; the per-transaction threshold (raised to CNY 1,000 per transaction from January 2026) applies only to purely occasional sellers.

Reduced rate where threshold is exceeded: When a small-scale taxpayer's sales do exceed the monthly exemption threshold, a simplified levy rate of 3 percent ordinarily applies. Under a separate preferential policy extended from 1 January 2023 through 31 December 2027, that simplified rate is reduced to 1 percent for most goods and services (excluding sales or leasing of immovable property, which remains at 3 percent for simplified-levy purposes) [SC8].

Small-scale taxpayers calculate VAT as: VAT = sales x simplified levy rate. They cannot offset input VAT against output VAT. However, from 2026, small-scale taxpayers below the exemption threshold may voluntarily waive the exemption and issue special VAT e-fapiao -- enabling their business customers to claim an input VAT deduction, which can be important for business-to-business relationships with general-taxpayer counterparties [SC7].

A getihu whose annual taxable sales exceed CNY 5 million must register as a general VAT taxpayer, adopt the output-minus-input calculation method, and apply the standard VAT rates (13%, 9%, or 6% depending on the nature of supply).

What additional surtaxes apply on top of VAT?

Where VAT is actually payable (i.e., the monthly exemption threshold is exceeded), the following surtaxes apply to the VAT amount due [SC9]:

• Urban Maintenance and Construction Tax (UMCT): 7 percent for operators in urban areas; 5 percent in county or town areas; 1 percent in rural areas.
• Education Surcharge: 3 percent of VAT payable.
• Local Education Surcharge: 2 percent of VAT payable.

In an urban location the combined surtax load adds 12 percent of the VAT amount owed. These surcharges do not apply to VAT paid on imports or to VAT paid by overseas individuals on cross-border services.

What social insurance options are available to self-employed and flexible workers?

Getihu and other self-employed individuals are not automatically enrolled in the employee-track social insurance scheme that applies to formal employer-employee relationships. They can, however, participate voluntarily in two schemes that serve those outside formal employment [SC10]:

Urban and Rural Residents' Pension Insurance (URRPI, 城乡居民基本养老保险): A government-subsidised scheme primarily for rural residents and urban self-employed individuals. Contributions are individually determined (with multiple annual contribution tiers to choose from), and the government supplements contributions with a subsidy. Coverage provides a basic state pension on retirement. Contribution rates are substantially lower than those under the urban employee scheme.

Urban and Rural Residents' Basic Medical Insurance (URRBMI, 城乡居民基本医疗保险): Available to individuals not covered by an employer-linked medical insurance arrangement. Funded through individual contributions and government subsidy. As of end-2024, the scheme covers over 954 million people and provides inpatient and outpatient coverage, though reimbursement rates are lower than the urban employee medical scheme.

Self-employed individuals who previously operated as employees and wish to maintain higher-grade employee-track insurance coverage can, in some cities, continue contributing to the Urban Employees' Pension Insurance (UEPI) on a voluntary basis at a combined rate of approximately 20 percent of a chosen contribution base (12 percent to the social pool, 8 percent to the individual account). Specific rates and eligibility vary by municipality. The June 2025 national policy removing hukou-based restrictions on enrolling in social insurance at the place of employment is expected to broaden access for mobile self-employed workers over time [SC10].

Work-injury and maternity insurance generally require an employer relationship; self-employed individuals do not have access to those two branches under the standard framework, though pilot programmes in several provinces (Jiangxi, Zhejiang, Guizhou, Shanghai, Xinjiang) have begun extending maternity coverage to flexible workers.

What is e-fapiao and what does it mean for self-employed operators?

The State Taxation Administration launched the fully digitalized e-fapiao (全面数字化的电子发票) system nationwide on 1 December 2024, replacing paper invoices and the earlier pilot phases [SC11]. Self-employed individuals and getihu who are VAT-registered must issue e-fapiao through the STA's unified electronic invoicing service platform -- accessible online or via the STA mobile app 24 hours a day, seven days a week. No physical tax control equipment (such as USB tax disks) is required under the new system.

Two types of e-fapiao are in circulation: the special VAT e-fapiao (for VAT-registered business transactions where the buyer is entitled to claim input VAT) and the general VAT e-fapiao (for other qualifying transactions, including consumer-facing sales). The fully digitalized format carries the same legal validity as a paper original. Invoices must be retained for 30 years; non-compliance with issuance obligations carries significant administrative penalties. The transition period for moving entirely to e-fapiao was set to complete by September 2025, after which continued use of paper invoices is non-compliant.

For the China country overview and information on corporate income tax, treaty reliefs, and other individual tax categories, see the linked hub. The interaction of these rules -- collection method selection, VAT threshold monitoring, surcharge computation, and social insurance decisions -- involves numerous moving parts; consulting a qualified tax professional is the appropriate next step.