Individual Income Tax for Expatriates in China

Individual income tax in China is a complex subject, and changes to the system often occur ? the Chinese tax authorities are currently considering increasing the minimum threshold at which individual income tax must be paid to RMB3,000 per month. While changes to China’s tax regime that would affect expatriates are not expected, the central government has been known in the past to wait until February or early March to issue new implementation rules and so changes can’t be ruled out.

The information in this article is the most up-to-date that we have. As with a lot of things in China, changes can happen quickly and we strongly urge those in need of tax advice to seek out professionals who will be aware of any changes to the tax regime.

Expatriates should be aware that newcomers must register for tax, work visas and residence permits, and those expats who worked in China during 2008 must still report separate annual IIT filings in addition to their monthly tax returns. There are financial penalties if this is not carried out for both sets of expat. Below we explain in detail.

China’s taxes: Who Pays? Who Reports?

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. For those sent to China by a foreign company, who have their salary paid elsewhere (probably in their home country), and spend more than 183 days of a calendar year in China (or 90 if they are from a country that does not have a double tax treaty with China), they need to pay IIT in China based on the number of days they effectively spent in the country.

New expatriates in China

New-to-China expatriates with full time employment here need to make sure they are in compliance. The onus is on the individual to ensure this and fines can be levied and passports censured if this is not carried out. Newcomers need to obtain a work visa, residence permit and register for tax upon commencing or signing contracts. The employer should arrange this for the employee. This is a serious issue and only gets potentially worse every month it is ignored. At some point, when an individual’s stay in China ends, they will have to reconcile with the authorities over their income. Immigration records, visa type and length of stay information are shared between the immigration authorities and the tax bureau. Those in doubt over their situation should seek a professional who can assist.

Chief representatives and general managers

When appointed, chief representatives of representative offices are subject to IIT from the first day they commence work in China. Should a chief representative not actually visit China within a calendar year, but continue to act as the chief representative of an RO, then zero tax filings should still be made monthly to the local authorities. For chief representatives who visit China, taxes need to be paid on a pro-rata basis, calculated upon the days they are in the country.

Senior managers of Chinese limited companies, wholly foreign-owned enterprises or joint ventures in China from Norway, Canada, Sweden, Thailand, Pakistan, Jamaica, Portugal and Kuwait – countries that have a ? senior manager? clause in their double tax agreement with China ? are subject to IIT from their first day in China. Senior managers are defined as company chiefs, deputy general managers, persons occupying functional chief positions, chief supervisors and other persons occupying similar management level position. Other expatriates are liable only after spending 183 days in the country (or 90 if from a country with which China does not have a double tax treaty). According to law, they should declare the full salary for the position and pay IIT.

Businessmen in and out of China

Foreigners who hold concurrent posts both in China and elsewhere (and usually traveling on a business visa) are subject to IIT based on the number of physical days they are in China. This is assessed upon the total salary they are claiming from their local employment position and from the parent company overseas ? the Chinese tax bureau may want to see proof of earnings from the parent (tax slip, payment voucher, etc). At the end of each month, the China office will need to take copies of the individual?s passport, together with the entry/exit stamps for that month, and file and pay taxes based upon the number of days spent in the PRC. The tax bureau will issue a receipt which can be credited against the tax paid in the individual?s resident country.

T he Chinese government regards individuals as tax residents when they have stayed in China for more than five years without residing outside the PRC for more than 90 days cumulatively each calendar year or 30 consecutive days within a single calendar year. A tax resident is required to pay IIT on their worldwide income without limitation of source, meaning that income elsewhere related to property rentals or interests will also needs to be declared to the Chinese tax authorities. The taxes paid overseas can be deducted from the taxes payable to the Chinese tax authorities.

Next :
Applying for Work Visas and Related Documentation

To know more, the whole issue is available (after a free subscription) on China Briefing website with others archives
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