China Expat Tax Filing and Declarations for 2012 Income

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Update: For information regarding expatriate income tax filing for the 2013 tax year, please click here.

Individual income tax finalization for foreigners in China

By Eunice Ku

Jan. 14 – Individual income tax (IIT) is normally withheld from wages or salaries by employers and paid to the tax authorities on a monthly basis (within 15 days of the end of each month).

An annual IIT declaration should be submitted to tax authorities within three months of the end of the previous calendar year (i.e., between January 1, 2013 and March 31, 2013 for the 2012 calendar year) for taxpayers who are subject to IIT in China and meet at least one of the following five conditions:

  1. Have an annual income of more than RMB120,000
  2. Derive income from two or more places inside the PRC
  3. Derive income from sources outside the PRC
  4. Received taxable income for which there is no withholding agent
  5. Other conditions regulated by the State Council

IIT Liability Determination
Whether a taxpayer is subject to IIT in China depends on income source and time period spent in China.

Income Source
China-sourced income refers to income paid by your employer (both domestic and foreign) during the period you provide services under your employment in China. Non-China sourced income refers to income received when you work outside the territory of China.

Time Period Spent in China
If you reside in China for less than 90 days (or 183 days for residents of countries that have signed a double taxation agreement with China) continuously or cumulatively during a calendar year, your only taxable income is the China-sourced income you receive from your Chinese employer. If you reside in China for more than 90 days (183 days) but less than one year, all of your China-sourced income would be subject to IIT, but you do not have to pay IIT on income derived from outside of China.

Residing in China for one calendar year means that, in a calendar year, temporary absences from China are less than 30 days continuously or 90 days altogether. Individuals who reside in China for more than one year, but less than five years, are subject to IIT on all China-sourced income as well as foreign-sourced income borne by a China-based entity. Foreign individuals who reside in China for more than five years are taxed on their worldwide income.

After an individual resides in China for five years, in the sixth year, if the individual resides in China for less than a year, the five year period is reset and the “90 (183) day rule” applies again. This means that you only need to pay tax on China-sourced income, and whether or not you need to pay tax on income paid by employers outside of China depends on whether you were in China for less than 183 days or more than 183 days. If you reside in China for one year during your sixth year, you will need to pay IIT on your salaries and wages derived both from China and outside of China, regardless of place of payment.

IIT Rates and Calculation
Income from wages and salaries is taxed according to progressive rates, with number of days spent in China taken into account. Non-employment income is taxed at different rates depending on income type.

Employment Income
Income from wages and salaries is taxed according to progressive rates, ranging from 3 percent to 45 percent of monthly taxable income.

Monthly taxable income is calculated after a standard monthly deduction of RMB3,500 for local employees. For foreign individuals working in China (including residents of Hong Kong, Taiwan and Macau), the standard monthly deduction is RMB4,800. Money paid into Chinese social insurance can also be added to the pretax deduction.

  • Monthly Taxable Income for Foreigner Individuals = Monthly Income – RMB4,800
  • Tax Payable = Taxable Income x Applicable Tax Rate – Quick Calculation Deduction

When calculating their IIT amount, foreign expatriates need to apportion their total taxable income based on the income source and time spent in and outside of China. The specific formulas are listed in the accompanying table. When counting the number of days you are in China for IIT calculation purposes, the day on which you enter into or exit China is included in the number of days you actually stay in China.

Non-Employment Income
Aside from wages and salaries, other non-employment income subject to IIT includes:

  • Income from individual industrialists and merchants’ production and business operations
  • Income from contracting or leasing of operations of enterprises and institutions
  • Remuneration for labor services
  • Author’s remuneration
  • Income from royalties
  • Income from interests, stock dividends and bonuses
  • Income from lease, transfer of property
  • Incidental incomes

Non-employment income is taxed at rates generally ranging from 5 percent to 35 percent, depending on the income source.

Employment Benefits
For IIT purposes, taxable income also includes bonuses, profit shares, allowances or subsidies, or other income related to job or employment. However, certain employment benefits for foreign individuals could be treated as non-taxable under IIT law if certain criteria can be met. These include (with supporting invoices where applicable):

  • Employee housing costs
  • Reasonable home leave fares of two trips/year for the employee
  • Reasonable employee relocation and moving costs
  • Reasonable reimbursement of certain meals, laundry, language training costs and children’s education expenses in China

Any cash allowance paid to cover expected work-related expenditures (such as an entertaining or travel allowance) will be fully taxable to an employee. Reimbursement may be a better approach for reducing IIT.

Portions of this article came from the January/February 2013 issue of China Briefing Magazine titled, “Annual Compliance, License Renewals & Audit Procedures.” In this issue of China Briefing Magazine, we discuss annual compliance requirements for China foreign-invested entities and detail the full audit processes for representative offices, wholly foreign owned enterprises, and joint ventures in China. We also discuss IIT liability for expatriates in China, IIT rates and calculation methods, permissible tax deductions, and how working for a permanent establishment can change tax liabilities.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

You can stay up to date with the latest business and investment trends across China by subscribing to The China Advantage, our complimentary update service featuring news, commentary, guides, and multimedia resources.

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China-Tax-Guide-2013-thmbThe China Tax Guide: Tax, Accounting and Audit (Sixth Edition)
This edition of the China Tax Guide, updated for 2013, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in China, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China operations.

The Asia Tax Comparator
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108 responses to “China Expat Tax Filing and Declarations for 2012 Income”

  1. michael says:

    Hi,
    I would like to ask, what options I ve for now since I went over 5 year in China without 30 days leave (31.12.2012).
    Is it enough, as to avoid being taxed in China on incomes froam abroad, to leave from now on every year for at least 31+ days in row? I can’t really leave PRC for 275 days this year.

    Yhank you in advance for your advise!

  2. @Michael; Them’s the rules, and you are now resident in China for the purposes of your worldwide income. No you can’t leave for ’31 days’ to make it back.
    The good news is that last time I spoke to the National Tax Bureau in Beijing they informed they they had never actually collected any worldwide income from any expats. But legally, they could, and if they decide to enforce that law it could be problematic for you if they start to ask for evidence of income earned elsewhere. Message (a bit to late for you I’m afraid) – DON’T break the 5 year residency rule on worldwide income.
    – Chris

  3. Jay Cheng says:

    I have a question regarding the worldwide income. Is the social security and Medicare the US employer paid regarded as expats’ income? What about the social security and medicare paid by expats in US? Are these be deductible?
    Thank you.

  4. @Jay – I have never heard of the China tax bureau claiming these as being under their jurisdiction, no. I wouldn’t worry about US Medicare as part of anything to do with your China tax situation. – Chris

  5. Lee Saunders says:

    Hello,

    I teach online for a school in China, but I live in the UK, and I am a UK citizen who was born in the UK. I don’t have a contract with the school, so I thought I was self-employed, as I am in the UK. This year they decided to tell me I need to pay tax.

    The table shows ‘Paid or born in China: pay —- Paid or born overseas: nil’
    This is confusing be because of ‘paid or’ for income derived in China in both columns.

    Do I have to pay IIT if spend zero days in China? It seems strange that I would have to pay tax in a country I don’t live in or visit.

    Thank you,

    Lee.

  6. Dear Lee; This sounds more like a contractual / invoicing issue in fact. It’s complicated by the fact that you don’t have any agreement in place. There are three issues you are discussing actually:
    1) Individual Income Tax – are you liable?
    No, because you are not based in China.
    2) Withholding tax on Services
    There is a possibility the Chinese tax bureau see your income as “China Derived” and therefore subject to WT. Rates are typcially 10%.
    3) The school are trying it on and wish to reduce your fees and are using the tax excuse as a reason for doing so.
    I am having one of our staff contact you directly via email to discuss this with you. Hope that helps.
    Best regards – Chris

  7. Nat says:

    I’m approaching my 5 years of living in China, so I was planning on going to Hong Kong for more than 30 days to break the 5 year rule. Is HK still considered as being “outside of China”? Thank you

  8. @Nat. Yes. But 30 days free every five years deserves rather better than Hong Kong don’t you think? Up to you, but think about it. The whole of the rest of Asia and beyond beckons for an entire month…
    Best wishes
    Chris

  9. Queenie says:

    I’m expat hired by an US company and it offers company pension to staff. Is this tax exempted, or it’s taxable under IIT?

    Thanks,
    Queenie

  10. Angela Ma says:

    Dear Queenie – Basically, only China statutory social welfare is tax exempted from IIT in China; all the welfare offered from overseas home country or any commercial medical insurance shall be added into taxable income for calculation of tax and subject to China IIT.

  11. Sarah says:

    A staff member is going to Shanghai for work and will be there for just over 3 months. He is on an Australian passport. Is it correct that he needs to be on a working visa as it is over 90 days and also that he has to be paid in China (not Australia). Is it also correct that if he is paid through Australia (not China) that he will be taxed twice (ie China and Australia). Thanks Sarah

  12. Maria says:

    Hello-

    I work for an organization with diplomatic status and hence don’t pay IIT (or any taxes for that matter) to begin with: do I still need to leave for 30 days before reaching my 5 year China-arrival-anniversary? Would I be affected in any way?

    Also, as I’m new to my job and also have a tax-filing question: if I don’t pay taxes, do I still need to file some sort of document with the Chinese authorities regarding my income/taxes? I work for a diplomatic organization, but I don’t have diplomatic status myself (not sure if that matters?).

    Thank you!

    M.

  13. Marvin says:

    Hi! Chris,

    I read the email thread (from previous post) until now, I am surprised that the 5 year rule is from the date of entry and not on the Calendar year because all along my understanding is the Calendar year. In anycase, I will have my 2nd 5 year in China. My last more than 30 days consectuive leave is on 2009. Basically my date of entry in China after 30 day rule break is Aug 30, 2009. I just want to double confirm that my 5 year rule need to be break before Aug 30, 2014.

    Kindly advice,

    Thanks,
    Marvs

  14. @Marvs; Five years from date of entry. So yes, you need to leave before August 30th 2014.
    – Chris

  15. @Maria; I’m not entirely sure about your status and it seems there is some doubt on your side too. Generally speaking you’d usually need to register with the tax authorities anyway who provide with with a “zero” tax filing status. But they need to give you that. I suggest you email our tax dept directly – Sabrina Zhang at tax@dezshira.com for further clarification on your specific situation. – Chris

  16. @Sarah, You need to refer to the Australia-China Double Tax Treaty. Article 5 states there is no income tax triggered by an Australian national who spends less than six months in China. If you need a copy, please email me: chris@dezshira.com – Best wishes – Chris

  17. Enric says:

    I am a Spanish national living in China with my wise, a Chinese national. I hold a spouse visa, which as far as I know does not allows me to work over here. I am about to start working online as a freelancer for a US company. Do I have to pay taxes in China? If so, where and how to get a TAX ID number to include in the bills? How much will I have to pay for a monthly income of about 500$?

    Thanks for the information!!

  18. @Enric: As a spouse, you’re not supposed to work. However working online is difficult to track. As long as you are being paid in USD to a bank account outside of China, I’d keep quiet about that.
    I won’t tell anyone either. – Chris

  19. Hans says:

    I have been employed in China for almost 8 years, and during this period have not been outside of China for any consecutive period over 30 days. If I leave China now, and every year subsequently, for over 30 days, is global income taxed, or only China sourced income ? If the clock resets, does it reset from the day of entry back into China after the 30 day period ?
    Thanks in advance, Hans

  20. @Hans – Technically you must now declare and pay tax on your worldwide income to the Chinese authorities. You cannot now reset that clock once the five year period is breached.
    However, the last time I asked the Ministry of Finance in Beijing if they had ever collected worldwide tax income from foreign nationals in China they replied “No.”
    This means they have the power if they wish to enforce collection, but at this moment choose not too.
    For all other readers, it is important NOT to breach thsat five year rule as discussed above.
    As for Hans, I suggest you just continue to declare your China earned income, and let the Chinese ask you over anything else if they want to. There’s no need to provide that information if they do not ask for it. I won’t tell them and you shouldn’t either.

    The point is, if they do ask, you’ll have to provide details of overseas income to them and yes, pay tax in China on that. We’ve been writing about this issue for over fifteen years on China Briefing, so there’s no excuse really not to have been aware of it. – Chris

  21. Riad says:

    Hi All,

    Last week i was very surprised by my previous employer, asking me to give the original tax on monthly income of 2012, what my employer said: because of PRC financial and taxes audit..

    As i know this tax have been paid by my previous employer anual income >120000RMB, then i was getting this imposable tax evidence monthly.

    Am-i supposed to give even the copies to my previous employer ??

    Thanks for you advices.
    Riad

  22. @Riad: There is no need to provide income tax receipts to an employer for whom you were not working for at the time the receipts were issued. You were not on their payroll for that time so there is no need for them to include you on their books – and doing so would be fraudulent. – Chris

  23. Sameer says:

    Hi!

    I am an going to be an Expat from India, on a workpermit to China for 2 months. My Indian salary will be stopped and my company has told that my gross salary in China will be 29,000 RMB/month.

    Can you please help me on the following questions
    1. Do I need to pay taxes considering 2 months stay (the amount will be less than 1,20,000 RMB/year)?
    2. Do I need to pay it myself or my company (which is a WFOE) will deduct it upfront from my salary?
    3. Based on my salary, could you please let me know how much total monthly tax will be deducted?

    Thank you so much for the help.

    Regards

  24. @Sameer – Yes you will need to pay individual income tax in China. Your company needs to register you for Individal Income Tax when you start in China and you will have tax deducted each month at a rate of 30%. Your company should automatically do this for you and provide you with an official tax paid receipt in your name at the end of each month.
    Therr is a full explanation of this in an earlier article on China Briefing here: http://www.china-briefing.com/news/2013/01/14/china-expat-tax-filing-and-declarations-for-2012-income.html
    – Chris

  25. Nathan says:

    Chris,

    I am currently in discussion with my company for a possibility of moving to Shanghai.

    Currently I am in Singapore and would like to ask for your advise.

    Is it possible for me to move to Shanghai, ask for a portion of my salary to be paid in Singapore and by doing that, will I be liable for China IIT?

    This is plan Ed to start in July 203 and by end of the year I think I will not be residing in China for more than 183 days due to travel, etc. my family though will be residing in Shanghai.

    I am obviously will be subject to Singapore income tax but I think that is more manageable.

    Thanks in advance for you advise.

  26. @Nathan – I think we need to discuss your exact situation and the circumstances of your working in China as your note is not fully clear. I will email you directly about this issue as we also have offices in Singapore. – Chris

  27. michael says:

    Hi
    Simple question (?!)
    I’m a UK citizen abut to start full-time work for a UK company in Zhejang region, but classed as ‘local hire’. Does the first 3 years tax-free rule still apply?
    Thanks

  28. @Michael: Simple answer: No.
    You will still have to pay individual income tax in China from the day you start your employment. – Chris

  29. Michael says:

    Thanks Chris, appreciate your prompt response.

  30. Monica Francis says:

    I am a teacher teaching in China being paid by a Canadian company. I have less than 183 days in each tax year. I have talked to the Tax Bureau but they are asking for all kinds of documentation. I have my contract and the income tax form showing I paid taxes.

    How do I get my income taxes back? I also downloaded a form and filled that out but still I am having trouble. Is there a tax accountant or tax lawyer that can handle this for me as I am getting very frustrated and fear than once I leave China I will not get my money back.

  31. @Monica: I’ve responded previously to you concerning this question via several emails with you. To reiterate, you’ll have little joy from the China end. They will view that you registered with the tax bureau, you were working in China and you are liable for tax which you have paid. I find it highly unlikely they will grant you a refund because you were in China for less than 183 days. That 183 days is a matter of qualifying residency, not a measurement of whether you were liable for taxes or not.
    In fact you were liable for taxes in China. You were working here. I don’t think you’ll be able to present a viable case to them.

    However, China and Canada have an agreement concerning double taxation, and a copy of that agreement can be found here: http://faculty.law.ubc.ca/brooks/treaties/canada/china_e.pdf

    However in your case I don’t think you have a case for relief under the DTA as you were not paying taxes in two locations for the same work. Accordingly I think you’ll find it hard to obtain any reimbursement for taxes in either jurisdiction. If you wish to pursue a claim then I suggest you do that in Canada, and talk to a Canadian tax expert familiar with handling overseas Canadians tax claims. However my personal opinion is that I don’t think you have much chance of success.

    Note that when you are working in China, with an employment contract and visa you are liable for individual income tax in China. The 183 day issue is a different matter related to residency.

    Best regards; Chris

  32. Jon says:

    Hi Chris,

    First off, good job on the highly informative article. It helps a lot.
    Pertaining my question, I’m offered a job to Suzhou with from my current employer(Swiss MNC).
    Currently I’m based in Malaysia and I’m a Malaysian.

    I look through the contract and it states a 2 year contracts. If I accept the Suzhou job, I’ll no longer be employed through the legal entity from Malaysia but as an expat from the legal entity from Suzhou. Do I still get taxed back home?

    Does Tax Equalization work in China?

  33. @Jon – You’ll be based permanently in China and that changes your tax residency from Malaysia to China. You’ll need to pay individual income tax according to China’s tax brackets as listed in the article above in the box “China IIT Rates & Deductions”. It is also possible that your IIT rate in China will be higher than the top 26% band in Malaysia and that you would therefore pay more tax in China than you ordinarily would.

    You’ll need to take advice from a Malaysian tax expert, however my view is that you may be able to claim back the difference between the higher rate you pay in China from the Malaysian tax bureau back in Malaysia. China and Malaysia have a Double Tax Treaty in place, it can be downloaded free of charge (along with many other similar treaties) from our ASEAN Briefing website here: http://www.aseanbriefing.com/regions/malaysia.html

    I suggest you discuss this with your HR department and work out the best way to enact this. If your employer has any questions, they may refer to us at asia@dezshira.com
    Best regards;
    Chris

  34. Kevin says:

    Hi

    I relation to the non-taxable reimbursable expenses, what typically constitutes “reasonable”? For instance is reasonable 20%, 30% or more of the base salary?

    Thanks

  35. Christopher says:

    Hi Chris,
    I have been working since July1 2011 for a WOFI company in Shanghai. I have resigned, effective June 30 2012 (ie 183 days worked, with approx 50 days total this year on overseas trips). I have been give a severance package. 2 questions:

    – Having stopped employment after only half of the calendar year, can I claim back any of the IIT already paid by my company on the last 6 months of salary?
    – Is severance taxable and if so how best to structure the severance package to minimize the tax liabilities. (child’s education contribution for example?)

    Many thanks in advance.

  36. Christopher says:

    Hi Chris,
    one further comment. My company inadvertently renewed my working visa until June 2014. If I decide to remain some more months in China not working, is it important from a tax perspective to change the visa type? thank you again.

  37. @Kevin: “Reasonable” isn’t subject to a percentage of salary. These expenses – which we identify above under the heading “Employment Benefits” must also be matched with official invoices/tax receipts. – Chris

  38. @Christopher;
    Point 1: No
    Point2: We covered tax on severance here: http://www.china-briefing.com/news/2012/05/18/severance-pay-subject-to-individual-income-tax.html
    Point 3: Technically as you;re no longer working you should change your visa type, so there is a small risk if you don’t. However my view would be not to worry about that oo much.
    Best regards
    Chris

  39. Kevin says:

    @Chris

    Thanks. So is it possible that a package could be structured so that the reimbursement portion exceeded that base salary amount? This is on the basis that the reimbursement is suported by fapiaos?

    Also, in terms of food etc, does this include general grocery shopping or just “dining-out” expenses?

  40. Steve says:

    Hi mate,

    Thanks for the valuable information. I’ve just recently gone self employed (2montjs) and reside in the UK. I run a business doing Online Marketing but planning to move to Beijjng in August.

    In most cases I think I’ll be working with a company for Visa purposes but also want to continue my Online business. Income is in USD from all the clients I work with so I’m wondering how this works once I arrive.

    I assume I’d have to be taxed from both ends but I’m still not 100% clear.

    Greatly appreciate any advice I can get. Thank you

  41. @Kevin: The reimbursement amount cannot be more than the salary. China practices “fair & reasonable” in these situations, and your suggestion would clearly be seen as an attempt to evade income tax. So it’s not going to fly. Food expenses – you can’t claim for your groceries! Maybe the occasional client dinner at a restaurant – but that needs to be claimed from your employer and go through their set of accounts not yours. You’ll need to discuss issues such as that with your employer as concerns their expenses policy for employees.

    @Steve: If your online marketing business in the UK is a UK company, that that is the business and jurisdiction of the UK tax authorities, not China. You cannot be taxed on your worldwide income in China until you pass the five year residency mark – which can also be broken up as identified above in the original article. So your UK business and income from it stays taxable in the UK only, you don’t need to declare that in China, while any income you derive while living in China from your work in China is taxed and payable in China.

    Hope that helps guys
    Chris

  42. Rob says:

    Hi,

    Great articles and follow up answers, i think i understand my position but would like to check. I live in China on a spouse visa and do not work in China. I work for a US company working all over the world. I have been in China for 10 years now but most years i am either out of the country for 30 consecutive days or 90 days throughout the year.

    As i understand it every time i am away for 30 days ( or 90 ) my 5 year period is reset and because none of my income is earnt in China i believe i am not liable to pay tax in China. Is this correct. Many thanks.

  43. @Rob; That’s not correct. The trigger period where you become tax resident in China is 183 days in any 365 day period. You need to count how many days you have been in China. If it is more than 183 days you are tax resident in China and the immigration authorities will pick you up on this soon if you have not registered. – Chris

  44. Rob says:

    Hi Chris,

    Thanks for your response, very much appreciate it.

    I still don’t really understand it as the reading seems to say if i derive no income from within China, in fact my work has absolutely nothing to do with China then i am not liable for 5 years.

    “If you reside in China for more than 90 days (183 days) but less than one year, all of your China-sourced income would be subject to IIT, but you do not have to pay IIT on income derived from outside of China.”

    Again thanks for your help, i guess i need to get myself down to the tax office.

  45. @Rob: The 183 days in China triggers your tax residency in China, period. That means that you MUST be earning income to support yourself just in order to live. You can’t be living off no income and you are now tax resident, so you need to make some sort of declaration to the Chinese authorities. No tax department in any country will accept you are living off zero income. Unless you are retired, and living off a pension, (which is a different matter) then the Chinese tax bureau will expect you to be earning income to support yourself and as the 183 days triggers tax residency in China you will be expected to fess up and part with some money. That’s how it works. Let us know if you need any help. – Chris

  46. Sudeep Ghosh says:

    Hi Chris,

    I am in discussion with a potential employer in Dalian, China. My monthly salary would be around RMB 30000. I am from India. Can you help me with regards to how the tax would be calculated. I will be in China for atleast 3 years if all goes well and may extend for another year. Is there a DTT between India and China? How will that help me.

  47. @Sudeep – I have emailed you personally and given you the contact of our Dalian office, they will be in touch to help. China and India do not have a bilateral DTA and in any event even if they did it would not affect you as will be tax resident in China. Best regards – Chris

  48. For my spouse says:

    Could you please ask your tax specialist to contact me by email. I am Chinese but my spouse is foreign. He does not work in China or have any income derived in China, but he does have a business overseas.

    We have been staying in China for several months this year to visit my family, but he is concerned about the 183 day rule if we are here for >183 days total in 2013. From your article it seems that he would not actually owe any tax to China (since no China-derived income), but the question is, does he have to register/file something with the tax department, and if so, does that include having to detail his overseas business income?

    If he does register/file with the China tax department for 2013 (due to > 183 days in 2013), what is the future requirement for monthly/quarterly/annual filings if he does not and will not have China-derived income but may be present in China in 2014.

    Thank you

  49. Deanie says:

    I will be posted to Shanghai with a monthly salary of RMB 50,000.00 for 3 years. I would like to know how much tax that I need to pay? How do I derive the Quick Deduction?

    Many thanks

  50. @Deanie – Your salary will be taxed at 30% percent after deducting RMB 4.800 every month. The quick deduction is derived from the progressive tax tier. It serves to not actually have to go through the calculation the progressive way, but rather directly choose the applicable tax rate judging by the monthly salary and deducting it after the regular tax calculation.

    Here’s the specific example for you: Tax payable = (RMB 50,000 – RMB 4,800) x 30% – RMB 2,755 = RMB 10,804

    Please note the section on employment benefits, that are not taxable under the conditions mentioned. This won’t change the tax calculation above, but will add tax-free benefits and overall lower your effective tax rate on individual income derived from China.
    For more specific information about how to legally lower your individual income tax in China, you can contact my colleague Ms. Cory Lam (cory.lam@dezshira.com) in our Shanghai office.
    Best regards – Chris

  51. Chris says:

    Hi Chris,

    I am living China since August 2010. My annual income is over 120.000 RMB. My employer is paying monthly tax, but I have never done my annual tax declaration. What is the best I can do now to avoid any trouble with the tax department?

    best regards, Chris

  52. Chris says:

    Hi Chris,

    One more question in regards to the “five year rule” which will exempt me from paying tax on income paid by an offshore employer. I have heard that the five year rule has to be approved by the Chinese tax authorities in each individual case. Is this correct?

    best regards, Chris

  53. @Chris: Concerning the Five Year rule, as far as I am aware China has never collected worldwide income tax from any foreign national. But the rule is on the statute and one day they will implement it. So it is advisable to break up your China stay as we have pointed out.
    Concerning your non-declaration of any tax, you need to get this done. That means collecting all the tax paid receipts (your employer should have been giving these to you) and completing the IIT declaration forms for the years 2010, 2011 and 2012. And apologize to the tax bureau for being late – they can fine you. If you need assistance with this and tidying it up for you then please email us at tax@dezshira.com specifying where you are in China, and someone from our nearest office will get in touch. It won’t be expensive as long as you have all the documentation to hand. But you should get this done and cleared up.

    Best regards – Chris

  54. Aubrey says:

    My friend is working as a contract teacher in China. I don’t think he filed for his taxes for the year 2012 correctly. I thought there is a tax treaty between the U.S. and China, that their income won’t be taxable. Please correct me if I’m wrong.

    He is married to a Chinese before he got the job. Is it better for them to file taxes separately, if its really true that he is tax exempt?

  55. @Aubrey – He still needs to file his tax return in China and he still needs to pay tax in China. He will not be eligible for any benefits under the China-US tax treaty. His individual tax also needs to be filed separately. – Chris

  56. John says:

    Hi I live in the uk and was wondering if I will be liable for paying Chinese tax. I’m working in shanghai for my uk company but we have been contracted by a well known American firm, they pay my work in the uk who then in turn pay me which is taxed in the uk, once I pass the 6 month mark will I personally have to pay the Chinese tax or will my work pay it?

  57. @John, I’m not sure I understand this statement “I live in the UK and working in Shanghai”. There seems some contradiction there. Can you email us at china@dezshira.com with more clarification and we’ll get back to you. Basically, if you are living and working in Shanghai you have a China Individual Income Tax liability. If you live in the UK you don’t – but you may have a withholding tax liability for any work you do that gets paid to you by Shanghai.
    Best regards – Chris

  58. Nicoleta says:

    Hi — 2013 is my 5th year and am planning to be out for December . However , just realized I was out of China for 181 days altogether during 2012 — can this equal the break ie being out f china for more than 90 days in a calendar year?

    Thanks.
    Nicoleta

  59. Hi Nicoleta, if you were out of China for 181 days last year you’ve already re-set the 5 year clock as regards worldwide income. Incidentally I don’t think the Chinese tax bureau have ever collected on that – but its wise to ensure you’re safe. Which you are.
    Best wishes – Chris

  60. Nicoleta says:

    Thanks Chris — so the more than 90 days cumulative in a callendar year is good enough? I miscalculated and its 119 days 🙂 . Appreciate your help on clarifying this. Thanks again! — Nicoleta

  61. You’re welcome ; )
    Chris

  62. Alice says:

    Hi Chris
    i arrived in China in 2008 september. i had read that the tax break law is based on calendar year (hence if 1st year of arrival is less than 6 mths of calendar year it is not counted) i have not left china for my tax break and was planning to for month of December 2013. Am i too late ?
    Appreciate your advice.

  63. michael kristensen says:

    dear chris,
    I’m a danish citizen and very soon leaving for china where I am planning to stay for more than 5 years.
    My danish company are paying me as am superintendent.
    They pay in denmark 8000usd and they pay in china 3000 usd.
    Do I have to pay tax from 11000 usd or 3000 usd??

    When I am getting close to the 5 year stay in china, how to reset this?? do I have to leave china for more than 6 month or how long.

    My company also pay for my apartment, is that taxable.

    Thanks for your help and any reply

    hi
    michael

  64. Greg says:

    Hi. I live in Shanghai and am an expat from the USA. I was informed by my Chinese tax advisor that while my housing expenses (paid by my employer) are considered non-taxable income, the utilities that I pay and are reimbursed for directly by my company are taxable unless they are part of my rental agreement. I find this hard to believe. Any advice?

  65. @Alice: The China tax situation is NOT based on calendar year. It is based on any given days within any 365 day period irrespective of calendar;

    @Michael: if you are based full time in China you are liable for your full income (in your case: USD11,000). Please have your company refer to the China-Denmark Double Tax Treaty, articles 4 & 5 concerning this: http://www.chinatax.gov.cn/n8136506/n8136593/n8137537/n8687294/n8687644.files/n8687651.pdf
    The rate of tax you pay in Denmark is lower than that you would normally pay in China so you need to invoke the treaty to pay the due tax in full in China and claim back in Denmark. If you do not declare your full income in China you are breaking the law and this is a serious offense. You cannot split income as suggested. If you need assistance with this matter please contact us at tax@dezshira.com. There are legal mechanisms in place to allow you to be paid in both places but the treaty needs to be involved to legally do so.

    @Greg: The use of utilities in China are your personal consumption and nothing to do with your company. Accordingly local, and state consumption taxes as applicable apply and are not personally deductable. Why should China spend money on its utilities infrastructure and give it away free to American expats?

    Best regards
    Chris

  66. Alice says:

    Dear Chris :

    Are you familiar with the severance entitlements for expatriates based on China employment laws if there is nothing pre agreed within my employment contract apart from a 1 month notice period?
    I have been with the company for 2 years.

    Thanks

  67. Peter says:

    Hi Chris,

    Have a quick question about the 30 days continuously out of China rule.

    I travelled out of China recently from the 12th of March (left on this day) to the 12th April (returned on this day). Does the total number of days include the travel days? If yes, then this will mean I was out for a total of 32 days. If no, this will mean I was out for 30.

    If it’s the latter, does this still qualify for being out of the country long enough to ‘reset the clock’?

    Thanks in advance for your thoughts.

  68. @Alice: Severance should normally be one month pay, plus one month for each year of service.

    @Peter: The Chinese regard the days you leave and enter as being half days. So you were out of the country for 31 days. That is sufficient to break the 30 day rule over world-wide income.

    Best regards;
    Chris

  69. Trey says:

    Hi

    I’m an American working legally in Shenzhen, China for almost 5 years, I’m a little scared about this double tax thing I heard about on the 6th year..

    I heard i have to pay back 5 years off all tax from the chinese school that paid me my salary?

    I made 12,000 RMB a month for 5 years, but I think they only taxed 10,000RMB each month = 120,000 from a Chinese school. I have no other income from inside or out of china, what will happen to me?

    I also heard that on my 5th year that I might be forced to leave China:

    国家外国专家局、财政部外国

    文教专家工资和生活待遇管理办法

    第十九条
    外国文教专家连续在华工作一般不得超过五年,再次应聘来华工作须在两年以后。

    State Administration of Foreign Experts Affairs, Foreign Ministry

    Cultural and educational experts wages and living conditions management approach

    Article XIX
    Continuous foreign experts working in China generally not exceed five years, once again required candidates to work in China after two years

  70. Doctorado says:

    First of all congratulations for this article and THANKS for your answers. You are doing a great job!!!

    I came here to check about the 5 years rule but now it is clear for me.

    I have a question though. I have been working for a Chinese company during 3 years (before I was paying taxes) and I did not pay any tax, and my company didn’t do either.

    For the momento noone went to the company or came to me to tell me that I should pay but I would like to pay taxes to feel safe.

    My income is 8000 RMB a month and I never paid for it. How can I do to start paying it? I want to do it but I dont know if it is too late, if the penalty will be very high or I better stay hidden as I have been till now.

    Thanks again for your time and knowledge.

    Best,

    Doc

  71. @Trey: You need a chat with our local office in Shenzhen so we can fully understand your situation and you can find out exactly what the law says. There is no “double tax” after six years for example. Please email them at shenzhen@dezshira.com. We do not charge for an initial consultation. Our Shenzhen offices are in Futian District (we took over the old Google building there when they moved out).

    @Doctorado: Its good you fess up and back taxes due. Generally the tax bureau will not impose late payment penalties if they feel you are trying to comply. You’ll need help with working out your back taxes and completing the relevant forms and will need someone help explain your case (in Chinese) to the local tax officials. Please email to china@dezshira.com stating where you are and someone from our nearest office to you will be in touch to assist.

    Best wishes
    Chris

  72. Yi Xuan says:

    Hi,

    We have a China staff who will be going to Shanghai for an extended period. We do not have an office so it will be an extended business trip. She will continue to be paid in Singapore. However will she be liable to taxes in China as she is from China.

    Thank you.

    Regards,
    Yi Xuan

  73. @Yi Xuan – there are many variables in this that you haven’t specified, such as exactly how long in China and so on. I have emailed you directly about this.
    Chris

  74. Ian says:

    I have been offered the opportunity to relocate to Shanghai, from the UK, next year to take a role as the COO of a global subsidiary of a UK listed group. The subsidiary has operations in the UK and China and a number of other countries. I anticipate a 4-5 year placement with around 60-90 days travel each year. I’m currently doing my research before I accept and have a few questions relating to personal taxation:
    Is there a benefit in relocating at such a time to ensure that I am not in China for 183 days during the 2014 tax year?
    My remuneration will include salary (derived from all of the operating businesses), the usual expat benefits as well as group shares and bonus. I note a previous comment about split salaries, so am I correct in assuming that all remuneration is liable to IIT irrespective of the source? e.g. bonus will be paid directly from the UK HQ into an offshore account. Also what is the tax treatment of share awards?
    Thanks
    Ian

  75. @Ian – this can get complicated and I think its also best not to go into a lengthy Q&A session concerning your salary package in China on a public forum. I am emailing you with a contact from our Shanghai office for you to discuss this with directly.
    Best wishes
    Chris

  76. Richard Vinnell says:

    Hello Chris, hope all is well. I have just started working in China as a contractor to an American Gas Company. My agency, who has a big office in China, pays 38 – 40% tax on my daily rate to Chinese Revenue. I am a Canadian citizen on a 28 / 28 rotation, with 2 days unpaid travel time on each side, and I would like to know if I have to pay tax in Canada? I live in BC. My agency issues a yearly ‘Wage and Tax’ document. My accountant in Canada is dragging his feet in providing me with any guidance. Hopefully you can provide me with some information that I can use, as my company is holding my pay until I can confirm whether the money should go into my personal account, or into my Incorporated Company in Canada. Your time and efforts regarding this matter are greatly appreciated!

  77. Andre says:

    Interesting and informative article Eunice, but I still unclear about my specifities.
    On my case specifically as freelancer which started less than 6 months ago offering translation services in China, with a very unstable income and living in China for 4 years and half, but who traveled several times outsideof the country (including few weeks ago) would I be eligible to pay taxes?
    If so, for example from a payment from an European company which pays VAT taxes internally deducting from my final payment, should I add to that and deduct even more money paying taxes in China?
    Second question: Which rights would a foreigner, freelancer have paying taxes in China?
    Thank you

  78. @Andre: If you reside in China for less than 90 days (or 183 days for residents of countries that have signed a double taxation agreement with China) continuously or cumulatively during a calendar year, your only taxable income is the China-sourced income you receive from your Chinese employer. If you reside in China for more than 90 days (183 days) but less than one year, all of your China-sourced income would be subject to IIT, but you do not have to pay IIT on income derived from outside of China.
    VAT and IIT are two different types of taxes. VAT payments cannot be used to deduct IIT.

    Hope that clarifies things for you.
    Best wishes
    Chris

  79. @Richard Vinnell: This is a question you need to ask of the Canadian tax authorities or an accountant in Canada. Let me know if you need assistance we have several partner firms in Canada.
    Best regards;
    Chris

  80. N. says:

    Hi Chris,
    Thanks for all of your answers in this forum.
    Extremely helpful!!

    Background:
    I have been working from our HKG office and paying taxes in HKG from 2005 to 2011.
    I initially entered China in Nov 2008 on a tourist visa and did not get a “Residence Permit” visa until 2011 (and only starting paying taxes in China in March 2011, I was being paid in HKG and paying taxes in HKG until 2011).
    During the Nov 2008 to March 2011 period I leaving the country every 30 days to comply with my tourist visa.
    I am still living and working in China.

    Question:
    Does the 5 year countdown start for me in Nov 2008 or in March 2011?

    Thank you in advance for your input!

    Best,
    N

  81. I have a question , I’m working in China since 2008 with applicable in IIT, my question is if i will leave or resign on the company do i have some of tax return ?

  82. @N: In your case it starts from March 2011.

    @Louie: Currently there will not be any tax return.
    Best regards;
    Chris

  83. Steven says:

    Thanks for all of the great information. In my situation I am leaving China at the end of December to remain within 183 days, and my question is about the days that I entered and exited China. Is it true that on entry/exit days, they are only counted as half days? I saw you mentioned this in an earlier comment but I have found mixed information online.

    I have 12 entry/exit days for this year in China and if they are only half days, that would let me stay an extra 6 days. If you could provide clarification, that would be awesome! Also, 100% of my income is from outside of China.

    Thanks for all your help!

    Steve

  84. @Steve: The issue concerning dates is a “matter of interpretation” but is generally construed as being half days. However in terms of your income being paid outside of China – this is irrelevant. If you are physically living and working in China you are subject to income tax in China. I suspect you are, and if so you are in breach of China’s tax laws. You really should get registered and get yourself a work permit. Otherwise they may not let you back in or you may be stopped and asked for proof of tax paid in China when you try to leave.
    Best wishes
    Chris

  85. Don says:

    My Chinese partner and I have been running an online store for some time now. None of our customers are from China. 100% of our income are from different countries. We received money from our customers through bank transfer. My question is, since none of our customers are from China neither do we make any money within China nor has any Chinese customer, should we still pay tax. Our business is more like procuring products for customers

  86. @Don: You don’t say where your place of business is. I presume as you are writing about China, you are physically based in China. If so, and if your servers are based in China you are potentially liable to pay tax in China as the transactions are deemed to have been enacted here. If your servers are based offshore then you are clear. My advise would be to host your servers in Hong Kong.
    Best wishes
    Chris

  87. Don says:

    You are right Ellis. I am current in China and my partner is also in China. Our servers are not in China. We have an office in China where we attend to customers that visited us. Our customers are growing by the day and this gives us feeling one day the government might visit our office. We are thinking of opening a company to avoid any official issue but do you think it is necessary. Remember that all our customers are outside China, our servers are outside China, do only think we have in China is the office. What is your advice?

  88. @Don – if you have an office in China and no business license then you are operating illegally. It will only be a matter of time before you are caught. It’s a serious matter – not registering a business but having an office there indicates to the Chinese you are deliberately avoiding taxes. Either your Chinese partner sets up a local company or you set up a Representative Office. Your current operations are unsustainable and will end up with you in a world of hurt. You need to get this fixed.
    Best wishes – Chris

  89. Don says:

    If we open a representative Office, do we have to pay the task?

  90. Al says:

    Hi Chris, thanks for this information.
    I am employed by an American company, and paid off shore in totality into Hong Kong.
    I have a business visa, but not a residence permit.
    I live with my Chinese wife in China.
    I have been there for more than 5 years, but I have spent numerous periods of time outside of the country, I am not sure if they were longer than 30 consecutive days, but perhaps.
    My employer has always told me that I was not liable to pay any tax, and this has been what has happened, however I am unsure of if this is indeed true.
    I have never tried to avoid tax, I simply did what my employer told me to do, but of course I am concerned that I should do the right thing.
    Could you shed light on where I should go from here?
    Thanks!

  91. Dear Al;

    Some bad news for you I’m afraid, you are liable for tax in China and have been working there illegally for the past five years. If the authorities find out about your situation, you would be liable for back tax for the entire period together with late payment penalties of up to seven times the amount due. It is also your responsibility, and not that of your employer, to have paid individual income tax in China. As I suspect it is probably quite a large amount, you are likely to have additionally triggered status as a criminal act which can carry imprisonment penalties as well.

    You MUST get this sorted out. At least start registering for tax in China and paying tax there, hoping that no-one will query the past five years. I have emailed you separately about this however I must stress your situation is serious and will have severe consequences if the Chinese authorities become aware of it.

    Yours;
    Chris

  92. bob says:

    Hi,

    I worked in Beijing from May 2008 until December 2013 (same company) and am now getting ready to leave China for good.
    I am French, worked legally with a local contract for the same company (so Z visa, legal working and resident permits, all legit and documented).
    Salary was ~ RMB 15000/month, with ~ RMB 2000/month of taxes already paid “at the source” (I have tax receipts).

    I have read that it might be possible to get some taxes back when you leave China for good. I am now talking with the company, but they say they don’t know anything about this (and I think they don’t care).

    So, my question is, is there a way to get (some of) the taxes back? and if so how?

    Regards,
    Bob

  93. @Bob – there would be no refund in Individual income tax when you leave China. I think this is being confused with the payments for social insurance, which if paid by any expats can be partially refunded upon departure. However as the requirements for expats to contribute to social insurance were only introduced recently I doubt you’ve been contributing. If you were contributing social insurance over the past year then you may be able to claim the pension portion of that back. If not, you have no claim or refund due. Let us know if you have some pension claim in China and we’ll assist: tax@dezshira.com
    Best wishes
    Chris

  94. bob says:

    Dear Chris,

    Thank you for your prompt and clear answer. You did guess right, I got confused with the social insurance contribution, and I did not contribute towards it either. Oh well, no extra cash to play with.
    Thanks again

  95. You’re welcome Bob. – Chris

  96. Philip says:

    Thanks for the great content Chris.

    Based on your advice, I am going to plan my 30-day break within the next 10 months =D.

    I’m considering applying for a Chinese Green Card next year, as I’ll qualify for it on the basis of my Chinese wife. If I were to get a Chinese Green Card, would this make me liable for the paying Chinese income tax on my world-wide income? Or in anyway change the 5-year rule as discussed above?

    It is understandable that the Chinese government might require that, but it’s something I would want to weigh up when deciding whether or not to apply.

    Many thanks in advance,

    Philip

  97. @Philip – We’ve looked into this and as far as we can clarify with the tax bureau, your tax obligations will not be changed or affected by your PR status, meaning the 5-year rule would still apply.
    Based on this, there is no clear answer on your specific position based on the existing regulations. This means it may be wise to have your employer confirm with the local tax bureau regarding this point.
    However, on an related matter, I recently asked a senior official at the State Administration of Tax in Beijing whether China had ever collected any taxes due from world wide income from any foreigners in China. The answer was “no”, and I suspect that the difficulties of getting hold of income data from other countries is likely to be the reason why. So although the rule is there and it is wise to offset it, there do seem practical issues that have prevented the calculation and collection of tax relating to world wide income from any foreigners in China to date.
    Best wishes
    Chris

  98. Philip says:

    Many thanks Chris, much appreciated.

  99. Valerio says:

    Hi Chris,
    one question regarding the 30 days for reset the clock of the 5 years.
    In order to be valid the 30 days need to be spent outside China before reaching the 5 years or not?
    Assuming that I entered in China 01 May 2010 should I complete 30 days before 01 May 2015 or I can also leave the country at the end of April (April 29) and come back after 30 consecutive days.

    Really appreciate if you can clarify this point.

    thanks

    Best regards

    Valerio

  100. Matthew Zito says:

    @Valerio, You must reset the five-year rule before you are deemed to have lived in China for 5 years continuously. Therefore, you must complete your 30-day absence from China before the 5 years are up. Leaving on April 29 will not reset the five-year rule, and would result in your global income becoming subject to Chinese IIT. But as mentioned in other comments, there are very few cases (if any) of the Chinese tax authorities actually collecting global IIT from foreigners.

    Best regards,

    Matthew

  101. Valerio says:

    @Matthew . Thanks a lot! is clear!

  102. B.Siddarth says:

    Hi,
    I have one query hope you guide me for the same. I am getting one offer by one of the companies from China to expand their business in India. So I will be placed in India but will get salary by employer in China in RMB. In this case suppose my salary 1,20,000 RMB/annum. And I will be traveling to China only for trainings and business meet.
    1. How much Income tax I will be liable to pay monthly? And in which country?
    2. Because salary slip will be from China will there be any problem while doing any transactions in India like Home loan or any other investment where I need loan from Bank?

  103. mike says:

    Thank you for your comments, which are very interesting and very illuminating; for my specific case, I would be grateful if you could clarify the following points:

    I am UK citizen, retired, and intending to take up residence in China on a spouse visa. Assuming more than 6 months were to be spent in China each year:-
    1. Is there an obligation to register with the Chinese tax authorities by virtue of being resident in China, independent of one’s source of income?
    2. Being over 65 years of age, I receive a UK state retirement pension, which would continue to be paid outside China. Should this be declared to the tax authorities in China and is it taxable?
    3. From money earned before my retirement, I have bank deposits and shares held outside China that produce some interest and dividends. Should this be declared to the tax authorities in China and is it taxable?
    4. If, from time to time, I send part of my savings to China for living expenses, either to myself or my wife, should this be declared to the tax authorities in China and is it taxable?
    5. My previous (European) employer has asked me to assist, should the need arise, in resolving problems related to a project I was involved in before my retirement. The work would be carried out entirely outside China, and payment would also be made outside China. Would this have to be declared to the tax authorities in China and would it be taxable?

    Many thanks.

  104. Aw, this was an exceptionally nice post. Taking
    the time and actual effort to create a top notch article… but what can I say… I put things off a lot
    and never manage to get nearly anything done.

  105. Kim says:

    What if i was in China for 2 years (student visa) for study and then worked 3+ years (work visa on a renewed passport with a different passport number) , without going out for China for more than 30 consecutive days or 90 cumulative days, would i be considered a tax resident by now?

  106. Sean Fonti says:

    I’ve been offered a two year contract teaching in a co operation program in a Chinese Foreign Language High School. The Australian company has offered to percentage income split my wages directly into my Australian bank, and a proportion into my Chinese bank account. I will maintain my Australian Resident Status for Taxation Purposes, as I’ll be in China for less than 2 years.
    If say, I proportion the the wages paid in China to 4800 rmb, which is tax free threshold for Foreign Experts, and make voluntary monthly tax payments on the balance of my income paid in Australia, will this be acceptable to the tax authorities in China? I know Australia and China have dual tax agreements

  107. Damien says:

    Hi, I’ve been working in China for about 2 years and in that period I have paid roughly 80,000 CNY in income tax on my monthly salary. I now wish to leave China to return to the UK. Can I claim back this 80,000 CNY if I am leaving the country? What is the process for doing so? I would really appreciate your advice as I have not been able to find much information about this online.

  108. China Briefing says:

    Hi Damien,

    Thank you for your inquiry. Please contact our international tax planning team at http://www.dezshira.com/services/international-tax-planning for more information.

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