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Expatriate Tax Guide

Updated:2014-12-28  CLOSE

Contents

1、Understanding the Chinese tax system

2、What to do when you arrive in the People’s Republic of China (PRC)?

3、What to do at the end of each month and tax year?

4、What to do when you leave the People’s Republic of China?

1、Understanding the Chinese tax system

1) Basic rules of Chinese Individual Income Tax (IIT) include, but are not limited to:

Individual Income Tax Law of the PRC

Detailed regulations for the implementation of the IIT of the PRC

Other specific taxation documents for foreign individuals

2) two basic concepts for better understanding of IIT of the PRC

Tax Residents refer to those:

China – domiciled individuals and Non-China-domiciled individuals having resided in China for a full year or more’

China-domiciled individuals refer to those who habitually reside in China because of household registration or family/economic ties and include those who have to return to China after completion of study, work or visit overseas

Non-tax residents refer to those:

Non-China-domiciled not residing in China and Non-China-domiciled individuals having resided in China for less than 1 full year

3) Who is liable for IIT of the PRC

A Two tables

For regular Employees

Inside China (China-sourced income)

Outside China (non China-sourced Income)

Days

Status

Borne by

Chinese

Entity

Borne by

Overseas

Entity

Borne by

Chinese

Entity

Borne by

Overseas

Entity

Less than 90/183

Non-resident

Yes

No

No

No

90/183 - 1 year

Non-resident

Yes

Yes

No

No

1 year – 5 years

Resident

Yes

Yes

Yes

No

More than 5 years

Resident

Yes

Yes

Yes

Yes

For Directors and Managerial Personnel

Inside China (China-sourced income)

Outside China (non China-sourced Income)

Days

Status

Borne by

Chinese

Entity

Borne by

Overseas

Entity

Borne by

Chinese

Entity

Borne by

Overseas

Entity

Less than 90/183

Non-resident

Yes

YEs

No

No

90/183 - 1 year

Non-resident

Yes

Yes

Yes

No

1 year – 5 years

Resident

Yes

Yes

Yes

No

More than 5 years

Resident

Yes

Yes

Yes

Yes

B Days in China

As for your better understanding of Days in China, here are two categories of rules, general rules and special rules

General rules:

Rule 1: Stay in China for 365 days in a calendar year, in which both the entry date and departure date will be deemed as one day in China

Rule 2: Temporary absence from China should be ignored. Which indicate single absence not exceeding 30 days or multiple absences not exceeding 90 days in aggregate;

Special Rules: Different clauses in Double taxation agreements cause special rules in regard of “days in China”

For example, when referring to time period of calculating aggregate 183 days,

For some countries the time period is a calendar year or a fiscal year, namely from January 1 to December 31;

For some countries the time period is any 12 months commencing from the exact date the foreign individual arrives in China

C Quotation from Double Taxation Agreement

DTA between China and United Kingdom

if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in the fiscal year concerned;

DTA between China and Thailand

if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days within any twelve-month period;

D Examples for calculating Days in China

üfor example, an individual with one 35-day trip outside the PRC during the year will not be considered as having a full year of residence for that calendar year.

üSimilarly, an individual with cumulative absences of 100 days during the year (even if any single trip is for less than 30 days) will also not be considered as having a full year of residence for that calendar year.

üIn addition, there is no joint tax return in the PRC. Husbands and wives are assessed and taxed separately and receive their own monthly standard deduction.

2 What to do when you arrive in the People’s Republic of China

1)Registration with the Chinese tax authorities

Foreign individuals who are liable to PRC IIT are required to register with the local tax authorities and provide some documents. For example, IIT basic information form (form A and form B) , photocopy of passport, work permit, expert certificate, working contract, house-renting contract and so on.

2)The following types of income by foreign individuals can exempt from IIT:

income from interest, dividends and bonuses from enterprises with foreign investments in China

dividends and bonuses from the share issuing enterprises in China for B or H shareholders

subsidiaries: housing meal and laundry expenses, relocation and moving expenses, business travel allowances, home leave expenses, language training expenses and children education costs

Here are some notes for you to bear as for subsidiaries:

For home leave expenses, Non-taxable on air ticket and travel costs between China and location of the foreigners ’ family

– Two trips per year

For language training and children education costs

– For costs incurred in China only

3 What to do at the end of each month and tax year?

1)Two basic concepts:

Tax year – January 1st to December 31st

Tax filing frequency – monthly tax returns are normally due on the 15th of the following month

2)Personal income for foreign individuals is categorized as follows:

A.Salaries and wages; remuneration for independent personal service; Author’s remuneration; Royalties; Lease of property; Interest, dividends and bonuses; Transfer of property; Contingent income; Other Income

B.Applicable tax rates for different categories of income

Categories of Income

Amounts of taxable income

Applicable tax rates

Income from wages and salaries

A monthly deduction of RMB 4800 shall be allowed for expenses and that part in excess of RMB 4800 shall be taxable income

Progressive rates from 3% to 45%

Income from remuneration for dependent personal service

A deduction of RMB 800 shall be allowed for expenses, if the amount received

in a single payment is less than RMB 4000;

For single payment of RMB 4000 or more, a deduction of 20% shall be allowed

for expenses. The remaining amount after

deduction shall be the taxable income

A flat rate of 20%; For personal service is

excessively high, additional tax can be levied

at a rate of 50% or 100%

Income from author’s remuneration

Income from royalties

A flat rate of 20%,the amount of tax payable, however ,shall be reduced by 30%

Income from lease of property

A flat rate of 20%

Income from interest, dividends and bonuses

The full amount received in each payment

A flat rate of 20%

Income from transfer of property

The amount remaining from the gross transfer income after deducting the

original value of the property and reasonable expenses

Contingent income

The full amount received in each payment

Other income

The full amount received in each payment

C Currency conversion rate for tax calculation

If your income is received in a foreign currency, it should be converted into RMB at the official rate of exchange on the last day of the preceding month when attending to the monthly tax filing.

D Annual filing

For those annual income exceeding RMB 120,000:

Who is liable: individual who have no domicile in China but has stayed in China for less than one tax year are excluded

What to report

What is excluded

Where to report: individual employed by an entity in China needs to report with the tax authority where the China entity is located

When to report: 1 January to 31 March

How to report

E Penalties for violation of IIT laws and regulations:

Late payment interests computed at the rate of 0.05% per day will be imposed on the amount of tax in arrears

Penalty up to RMB 10,000 may be imposed for failure to file a return and pay tax within the prescribed time limits

In addition, in the case of tax evasion, a penalty ranging from 0.5 to 5 times the amount of tax overdue on the taxpayer or the withholding agent

4 What to do when you leave the People’s Republic of China

Tax de-registration:

When you leave the PRC, you need to de-register with the local tax bureau for tax purposes.

Documents provided

Tax certificate

Tel:028-87774088