2010 China Expat Income Tax Planning

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Update (January 15, 2013): For information regarding expatriate income tax filing for the 2012 tax year, please click here.

By Dezan Shira & Associates

Jan. 12 – China has a multi-tiered system of tax liabilities for foreigners, which has led 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-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.

The 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.

Individuals in China with annual incomes in excess of RMB120,000 need to complete and submit an annual self-declaration of their income earned in 2009 by the end of March 2010. This Individual Income Tax Declaration Form needs to be completed and submitted to the local tax authority in addition to regular routine monthly tax filings by taxpayers with and income in excess of RMb120,00 or any other the other following conditions: income derived from two or more places inside the People’s Republic of China; income derived partly or fully from sources outside the People’s Republic of China; those who have received taxable income but not paid tax; as well as other conditions regulated by the State Council.

This is a mandatory obligation for those who qualify. Regardless of if the individual has declared and paid the correct individual income tax on a monthly basis, they still must complete self-declaration of their 2009 income to the tax authorities.

Information that needs to be given of for the declaration includes: name, ID type and number, profession, employer, place of residence, address in China, post code and telephone number, as well as tax data such as the annual amount of any different sourced incomes, taxes payable, taxes prepaid and withheld, foreign tax credit and taxes owed or overpaid. In addition, foreigners should declare their nationality and date of arrival in China.

The office where the forms need to be filed is dependent on the situation of the individual making the declaration. Taxpayers employed within China need to file their declarations at the local tax authorities of the place where their employers are located. Taxpayers with two or more employers within China need to file their declaration at a fixed local tax authority in the place where one of the employers is located. Taxpayers with no employer in China, and whose annual income includes money from production or business operations by individual households engaged in industry and commerce, or money from contracting or leasing operations of enterprises or institutions, should file their declaration form at the local tax authorities in the place where one of these businesses are located. Taxpayers who have no employer in China, and whose annual income does not include any money from the aforementioned production or business operations, should file with the local tax authorities in their place of residence.

Annual income includes: wages and salaries, income from production or busin

61 Responses

  • Dear Sir / Ms.: You stated, “The 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”

    Subsequent to the individual residing outside the PRC for 30 consecutive days within a single calendar year (occuring during year five), then what happens? Does the five year clock reset to zero or is a 30 consecutive day leave required each following year?

    Thanks.

  • Editor says:

    Dear Craig,

    It is our understanding that the clock does indeed “reset” every time you have been outside of China for more than 30 consecutive days.

    Regards,

  • Eric Wheldon says:

    What happens if you exceed the 5 years, and then leave for more than 30 days, but return again to China? Does the clock reset again?

  • Editor says:

    Dear Eric,
    If you exceed five years in China you have two options:
    1. Travel outside of China for more than 30 days continuously in each calendar year; if in one year, for example, 2015, you do not travel outside China for more than 30 days continuously or 90 days cumulatively, then you will pay worldwide income to Chinese tax authorities in 2015.
    2. In order to cancel this situation, you will need to stay in China for less than 90 days cumulatively in a calendar year, after which, the five year rule will reset.

    Regards,

  • Terence Parker says:

    Thanks for the useful article, and subsequent clarifications. However the wording is still somewhat ambiguous. For example, is the text suggesting that at ANY time within the five year period it would be sufficient to leave China for more than 30 days to pre-empt entering a sixth year, or must I have been outside of China for more than 30 days (or 90 cumulative) EACH YEAR out of those five to qualify?

    I note the following document http://www.docin.com/p-10412696.html , which seems to suggest the latter, though it does not define what constitutes one year.

  • Editor says:

    Dear Terence
    It is out understanding that at any time within five years when a person leaves China for more than 30 days, the clock “resets.” If however, a person has remained in China for more than five years without leaving for more than 30 days in the same period, then they must depart the country every year for 30 days in order for their world-wide income to not be taxed by the Chinese authorities.

    Regards,

  • Expat 007 says:

    Hello,
    in one of your earlier publications (published in 2001), you state the following:

    “Other income remains out of reach of the PRC authorities, although this changes if the employee resides in China for more than five years, whereupon he is then taxable on his worldwide income.”

    Is this 5 year rule no longer applicable?

    Many thanks for your input.

    Kind regards,

  • Editor says:

    The five year rule is still applicable. If you remain inside China for more than five years without leaving for more than 30 days within one year, your word wide income will be taxable inside China.

  • tammi walsh says:

    What if you are receiving a bonus payout for work done in the States and paid in the states but you are currently in China for less than 5 years. The work has to do with a plant closing and transferring the line to China. It is a retention bonus or severance bonus

  • Dan says:

    Does the 30 days consecutive leave can be start from any day of the calender(as long as it is 30 days) or have to be from 1st day of the calender until end of the calender month ?

  • Editor says:

    Any 30 days, not including the day you leave and the day you return, which and counted as half days in China.

    Regards

  • Lukas says:

    Dear, understand “The 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”

    But are the 30 consecutive days needed for each year of the 5 year period or only needed one time within the 5 year period?

  • Editor says:

    Only once during the five year period. However, if an individual fails to exit China for more than 30 days within the five year period, then they must exit China every year for more than 30 days in order to avoid paying IIT on worldwide income.

    Regards,

  • Antonio says:

    Dear Sirs,
    I heard that if an expat leave in China for more that 1 year but not exceed 5 years and if in one year spend more than 30 days consecutive or 90 days cumulated out of Chinese territory, it is not requested to pay tax for any salary received in the home Country but only for the wages received in China.
    Reading the article I understood that is considered tax resident only who live in China for at least 5 years and then I found these two sentences:
    “Expatriates who are not usually residents of China, but have lived in China for at least one full year, and whose income has derived from sources within China are subjected to individual tax and have the legal responsibility to complete the annual tax return”
    and
    “Expatriates who have lived in China for more than one year, but no more than five years are required to report the salary or wages excluding income which has derived from sources outside China such as commercial or industrial income”
    I have 2 quesiont on this:
    1) Is it true what I heard?
    2) Is it valid even in case the company in the home Country has declared I’m expatriate and hence doesn’t pay any IIT on my salary abroad and the Chinese company is paying only taxes on the salary paid in China?

    Best regards

  • Editor says:

    Dear Antonio,

    To answer your questions:
    1. “Expatriates who are not usually residents of China, but have lived in China for at least one full year, and whose income has derived from sources within China and derived from sources outside China but paid or borne by China are subjected to monthly routine individual tax and have the legal responsibility to complete the annual tax return if their annual income in excess of RMB120K.”

    “Expatriates who have lived in China for more than one year, but no more than five years are required to report the income sources from China and income sources outside China but paid or borne by China excluding income which has derived from sources outside China such as commercial or industrial income.”

    2. If the expatriate stays in China less than 90 days or 183 days from those tax treaty countries, the expatriate’s tax obligation is for the income paid or borne by China.

  • Lukas says:

    Dear,

    Please advise if “housing allowance” which is paid in addition to salary is tax free.

  • Editor says:

    Dear Lukas,

    Housing allowance for expatriates in China is tax-free provided proper documentation is presented.

  • mike says:

    Can an expat salaried person claim tax deduction for further education to enhance one’s skills and any other tax deductions apart from the RMB4800 from one’s salary.

  • Editor says:

    Dear Mike,

    The following are tax exempt as part of a package:
    Housing at cost
    Free use of vehicle
    Reasonable expenses reimbursed
    Reasonable home leave allowance
    Reasonable education for children

  • mike says:

    I have been made to pay tax on reasonable home leave allowance and at a much higher slab due to lump sum payment.How can I claim tax reimbursements?

  • Editor says:

    Mike,

    If it is possible to provide an invoice for meals, air tickets from China to your home country, or children’s education, then yes, your home leave allowance can be described as such for tax exemption purposes.

    Another solution would be to define the the lump sum as an annual bonus for preferential tax rate. Please note that an annual bonus can only be declared once a year.

  • Dekoning says:

    Dear Sir,

    Thank you for the helpful and detailed information on the worldwide income taxation in China. In March next year I will have stayed in China for 5 years and therefor will be taxable on my worldwide income. If to avoid this I have to find some time in the coming months to stay out of China for more than 30 consecutive days. My question: does it matter when I go out of China for 30 days? Should it be in the last FULL CALENDAR YEAR before the 5 year term is completed (meaning I have to do it in 2010) or is january or februari 2011 also fine to do it since the 5 year term will be completed in march 2011?

  • Editor says:

    Dear Dekoning,

    As China’s tax years are calendar years, and your first full year in China was 2007, you will need to be outside of China for 30 days at some point in 2011 (but not before March of 2011).

  • Lukas says:

    Dear,

    Re housing allowance and proper documentation:

    Is a yearly contract which states the monthly rental sufficient? Or do I need to provide monthly bangking slips?

  • Editor says:

    Dear Lukas,

    You will need both the rental contract as well as the invoice (fapiao) for rent paid.

  • Bear says:

    Dear Mike,

    Very useful information!

    I have a few questions:

    1. Does Hong Kong count as an overseas location to hide for 30+ days?

    “It is important to note that income sourced externally from China may be tax exempt from IIT. ”

    2. Do you have any more details about when this applies?

  • Hans says:

    If my 5 year period ends for example on 30 June 2010 and I have to leave China for 30 days consecutively in the “next year”, how exactly is the “next year” calculated? Do I need to complete the 30 days before 31 December 2010, before 30 June 2011 or before 31 December 2011? Thanks a lot

  • Editor says:

    Dear Bear,

    Hong Kong qualifies as a foreign country for tax purposes and so is a viable location to spend your 30+ days outside China.

    You need to be mindful of the 90-183 day rule. If you are the resident of a country with a double tax agreement with China, your annual income for work in China will be taxed if you spend more than 183 days in China, if you spend less than 183 days, only those days will be taxed. If you are the resident of a country without a DTA with China, then spending more than 90 days inside China will qualify for tax purposes. China’s tax year is from January 1 to December 31.

  • Editor says:

    If your 5 year period ends on 30 June 2010, from my understanding, you arrived in China on July 1 2005. Calendar year 2005 is not your first year in China, because:

    1. You were absent from China for more than 30 days continuously in calendar year 2006, for example: January 2005
    2. You were absent from China for more than 90 days cumulatively in calendar year 2005, for example: the days cumulative before July 1 2005

    In your case:

    0 year: 2005
    1st year: 2006
    2rd year: 2007
    3rd year: 2008
    4th year: 2009
    5th year: 2010

    Therefore, if you do not want to become a resident taxpayer in China, it is suggested you travel outside China for more than 30 days continuously in your 5th year 2010, before December 31 2010.

  • Craig Bachner says:

    Great article and discussions.
    Regarding the annual self declaration…
    My spouse has been an employee here for serveral years and her employer prepared her annual self declaration in past years.
    Because she will leave at the end of November, they say an annual self declaration will not be required because she was not a full-year employee (not working in December). They say the monthly declarations are sufficient. She earned more than RMB120K. I cannot find any information about the “not full year” exclusion. Please offer some insight about this.

  • Rena Ong says:

    I arrived in China on 2 Feb,2006. When is the latest that I have to be away for 30days? Or rather, when do I complete the 30 days and return to China? Thanks!

  • Editor says:

    Dear Rena,

    If you have not been outside China for more than 30 days consecutively or 90 cumulatively, then you will need to leave China at some point during 2011. You must depart at the latest on December 1, 2011, and not return until January 1, 2012.

    Regards,

  • Carl says:

    Hi there, I arrived China on 29 Apr, 2004. Since then I’ve been in and out of China many times, however, I’ve been outside of China for over 30 consecutive days in Mar 2007 and Mar 2009. If I understand you correctly, both these two periods of being away reseted the clock. Ever since I came back to China on the 21 Apr, 2009, I had only been away for 23 days cumulatively. I’ve been paying nothing but China Tax for 2009. I’m about to start working for a different WOFE in Dec who pays me RMB from offshore directly to my China A/C. Am I considered as “tax resident”? How often and when do I need to be outside of China for i) keeping my income tax offshore; ii) ensuring that I won’t be paying IIT on worldwide income? Many thanks!

  • Editor says:

    Dear Carl,

    To answer the second of your two questions first, you are currently not considered a China tax resident. As you were outside China for more than 30 days consecutively in 2009, the first year that will count towards your five year tax residency is 2010. Therefore, you will need to spend at least 30 days consecutively outside China before the end of 2014 to ensure you are not a China tax resident and therefore have to pay IIT on your worldwide income.

    As for keeping your income offshore, regardless of where you are paid, your income is derived from working in China, therefore you are liable to declare it and pay taxes on it.

  • Carl says:

    Thank you. So, if I were to leave China for a period of 30 consecutive days say on 1 Dec 2010, then the clock resets again and my five year tax residency starts when I return in 2011? meaning that my worldwide income is non-taxable by the SAT if I leave again before the end of 2015.

    What, if any, benefit of leaving the country every single year for 30 consecutive days to ensure I don’t reside in China for a full calendar year? Given the upcoming assignment is paying me directly from offshore in RMB to my China a/c. Am I supposed to be only paying the tax offshore if the home country has the double-taxation treaty agreement?

    Thanks in advance for clarifying further.

  • Kevin says:

    Thank you for the excellent information..

    You mention in an earlier post that a defined lump sum shall recieve a preferential tax rate , can you give me information on that rate and what limit there is in claiming , I negotiated a 1 off yearly bonus for coming to China and this would be of interest to me..

    Thanks

  • Editor says:

    Dear Kevin,

    For a lump sum bonus, you must first divide the bonus by 12 to determine a monthly taxable income tax rate for the bonus (for example, if your bonus is RMB90,000, then 90,000/12 = 7,500; which gives you a tax rate of 20 percent). Multiply the bonus by the tax rate minus the quick deduction (for a tax rate of 20 percent, the quick deduction amount is 375) to get your total tax liability. In the case of a bonus RMB90,000, your taxable liability is RMB17,625.

    Regards,

  • Sissi says:

    Hi there, my husband, a HK person, is currently working on a deal with a foreign company to be assigned to work in Shanghai, one of our major concerns being the lack of pre-tax deductibles in China that results in a much higher tax rate compare to HK.

    He learnt from HK friends working in Shanghai that one of the common arrangements with a foreign company to lower the employee’s tax liabilities is to sign two contracts, one with the HK HQ and the other with the China branch, with two salary payables in the respective currencies.

    At the same time, allow the assignee to take a “tax break” – by going away to the company branch office offshore and provide service there every single year for a period of no less than 30 consecutive days to ensure the employee won’t be spending a full year in China so that the “bigger” portion paid offshore would only be subjected to HK tax.

    Is the above-mentioned arrangement legal? Can one individual sign two employment contracts with the branch office in China while signing another one with the mother company in HK with two salaries in different currencies being paid to two accounts a legal way to avoid paying too much tax?

    Sorry for this long message, I’m worry about the disposable income in China might not be sufficient to support our family with two kids, as I heard education expenses for kids in Shanghai is rather high.

    Please response at your earliest convenient, we want to understand what we’re getting ourselves into before making the final call.

    Many thanks!

  • Editor says:

    Dear Sissi,

    Regardless of where your husband is paid, the importance for tax purposes in China is whether the income is “derived from China,” which means it is income that was received for working in China. Removing yourself from China for no less than 30 consecutive days a year will ensure that your worldwide income (such as home equity and rent from a house in Hong Kong, or offshore passive income like stocks or bonds) is not subject to tax in China, but any income that you receive as a result of your work for a company while in China will be taxable in China, regardless of where it is paid.

    Regarding you plan to be paid in both Hong Kong and China, in the past, many people have used this system of signing two contracts and getting paid in China and paid in Hong Kong to lower their taxable income and tax rate in China; this is illegal and the tax authorities are becoming increasingly vigilant in finding these types of tax evaders.

    Regards,

  • Sissi says:

    Thanks so much!

    Another question would be regarding the medical benefit, according to my husband that the company is providing a global medical benefit scheme as part of the remuneration to each and every staff (overseas assignee or not), I was told that such benefit is liable for tax, how much tax is that subjected to?

    Also, given the contract is HK-based, then I assume the company is required to provide P-fund as it’s mandatory in HK by law, is that taxable as well?

    Thanks again for your professional advice as before!

  • Sissi says:

    oh forgot to add, is it allowed for the tax liabilities of the medical benefit scheme be covered by the employer instead of the employee, if so, how to get about doing that legally??

  • Editor says:

    You would need to convert the medical benefit to gross pay and this would be worked out then as part of your salary negotiations.

    For more information, please contact Dezan Shira & Associates at tax@dezshira.com.

  • Editor says:

    Regarding medical benefits, they will be considered part of the salary and added to the monthly net salary for the calculation of taxes. Therefore, if you receive an RMB30,000 yearly medical stipend, then RMB2,500 will be added to each month’s salary prior to calculation of taxes.

    Regarding the P-fund, as it is a mandatory requirement in Hong Kong, it will be considered tax deductible for IIT in China. You will need to provide proof of payment to claim the deduction.

  • eduard says:

    Does it mean I only need to go for a long holiday outside of China, which should last more than 30 days, to reset the clock? I neither need to give a note to the local authorities, nor do I need to cancel my rental contract with my landlord. I just need to stay outside of China for more than 30 days. I do not need to register in an other country. Is it correct?

  • Editor says:

    Dear Eduard,

    Correct, you must be outside China for 30 consecutive days. Please note that the day that you depart and the day that you return are viewed as days in China.

  • Charlotte says:

    My employer is outside of China and cannot file tax declaration for me. How do I do this myself?

  • Editor says:

    Dear Charlotte,

    You must self declare with the local tax bureau where you work.

  • James says:

    Dear Editor,
    Thanks for the informative site. I would appreciate some advice. We are HK company manufacturing in PRC. One of our employees travels to the PRC regularly checking on factories etc.He is often there three days a week. We also have a rep office in PRC where he spends time. He is a HK person. How many days a year can he spend in PRC without being subject to PRC taxation? As his employer, if he exceeds his number of days, what obligations do we have in terms of reporting etc. We are anxious not to inadvertently fall into any penalty traps. Thank you.

  • Editor says:

    If your employee is inside China for more than 183 days, then they are liable for tax on the days that they are in China.

  • Isabel says:

    Dear Editor,

    Is leaving to Hong Kong considered leaving China? Now that Hong Kong has become part of China…..
    Thanks.

  • Editor says:

    @Isabel

    Yes. For tax purposes, Hong Kong is considered outside of China.

  • Gabriel says:

    Dear Editor,

    1. US China has a three-year tax exemption agreement for educators. If the educator is not paid in China, does he/she need to file taxes here? Or, because of the tax exemption, there is no need to file taxes in China?

    2. If the educator leaves China for a certain period after 3 years, could the 3-year exemption be restarted?

    Thank you for such an informative site!

  • Chris Devonshire-Ellis says:

    Dear Gabriel, please email directly to tax@dezshira.com with your question and we’ll deal with it directly there. Many thanks – Chris

  • Andy says:

    Dear Editor,

    Thank you for the excellent essay.
    In the 3rd paragraph you mention:

    <>

    Q1
    In case an individual leaves China after his/her staying >5 years and becomes a resident of another country, will this individual still be regarded as a tax resident of China (e.g. for lifetime or a certain period)?

    Q2
    If such individual moves back to China for a 2nd time after residing in a foreign country for a few years, will the ’5-year rule’ calculation start from zero again?

    Your kind feedback is much appreciated!

  • mike says:

    After my employment contract terminates and I leave china to take up employment elsewhere,I wish to retain RMB in my savings account.Since I am no longer a tax payer,will there be any Tax deducted at source ? and which I cant claim back and also if I could repatriate the funds since I am not holding a work permit.

  • Jay Hsiao says:

    Dear Editor,
    I came to China in March 2010. Do I have to complete the annual self-declaration for 2010?

    Thanks,

    Jay

  • Hi, I am citizen of Nepal and live in Nepal. I had consulting agreement with Chinese company providing legal service to the company of China. Do I need to pay tax on my income as the Chinese Company is saying that I need to pay 25% tax on my consulting service income. I appreciate if you could give your personnel opinion on this matter.

    Regards

    Gandhi Pandit

  • Chris Devonshire-Ellis says:

    Guys please direct questions on these issues directly to Dezan Shira & Associates at tax@dezshira.com. They’ll give professionally qualified answers.
    Thanks – Chris

  • Chris says:

    HI, I am a citizen of HONG KONG and will work for a local Chinese company in Shanghai, but will travel a lot to overseas and have half of time to local home base in HONG KONG. I expected I stay in China less than 183days, does it mean I will not need to pay tax in China? Is there any P-fund require in China? Thanks

  • Julie Chiu says:

    I arrived in China in July 9, 2007. When does the five year calculate from…..July 9, 2007 or from January 1, 2008 with the new tax year? When do I have to complete my 30 day day exit…before July 2012 or before Dec 31, 2012?

  • Thank you all for your questions and comments.

    Since this article is from January 2010, I’d ask that further questions be posted on our more recent (and more exhaustive) article published in January 2012.

    http://www.china-briefing.com/news/2012/01/16/china-expat-tax-filing-and-declarations-for-2011-income.html

    Thanks again for reading!