China has a multi-tiered system of tax liabilities for foreigners, which has lead to some confusion, particularly over the so-called “90 or 183 days rule”.
We identify the more likely scenarios and the tax liabilities as follows.
Expatriates on extended business trips to China
If you are sent by your organization to China and your salary is paid elsewhere (probably in your home country) and you spend more than 183 days in China (or 90 if you from a country with which China does not have a double tax treaty) in a calendar year, than you have to pay IIT in China based on the days you effectively spend in the country. This means that if you spend in China, let’s say, 184 days within a calendar year, than you would have to pay taxes on all income sourced from China (meaning income related to your work performed in China) from day one of your arrival in China. Your passport stamps tell all.
Foreigners working for legal enterprises in China
If you are the Chief Representative of a Representative Office (RO), then you are subject to IIT from the first day you commence work in the country. Interestingly, should you not actually visit China within a calendar year but are still acting as the Chief Representative of a RO, then zero tax filings should still be made monthly to the local authorities. If you do visit China then you should pay tax on a pro-rata basis, calculated upon the days you are in the country. Again, your passport stamps are evidence of this and filings may be conducted retroactively after you have exited.
If you are the General Manager (GM) of a Chinese Limited Company, WFOE or a Joint Venture (JV) anywhere in China, or in any other position in such a company, then you become liable after spending 183 days in the country (or 90 if you from a country with which China does not have a double tax treaty).
According to the law you should declare the full salary for the position and pay IIT accordingly. In practice, however, it is common to see foreigners declaring an “arranged” fixed salary for their China position (with the rest being paid off-shore) and pay taxes accordingly, lowering to a great extent their full tax liability. This practice is illegal. While this has been common practice in the past, it also puts the employer out of compliance – fines of several million RMB have been levied just recently to FIEs engaged in such practices– and the risk of being caught - with the issue now highlighted at audit – is increasing.
Foreigners holding concurrent posts both in China and elsewhere
Firstly, you should be arriving in China on a business visa, and are subject to IIT based on the number of physical days you are in China. This is assessed upon the total salary you are claiming from your local employment position and from the parent company overseas – the Chinese tax bureau may want to see proof of earnings from your parent (tax slip, payment voucher etc) to support your case. At the end of each month, your China office should take copies of your passport, together with the entry/exit stamps for that month, and file and pay for taxes based upon the number of days spent in the PRC. The tax bureau will issue a receipt showing this has been paid, and this can be credited against the tax paid in your resident location (i.e. you won’t have to pay tax both in China and your resident location for the time spent in China). You may need to cross reference with your home town accountants over this – or refer to Dezan Shira & Associates (members of the Leading Edge international alliance of accountants) for an introduction to a firm in your city, worldwide.
