China Clarifies Tax Exemptions for Teachers and Researchers

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Aug. 5 – Quite a few double tax agreements (DTA) between China and other countries allow eligible teachers and researchers from the other country to stay exempt from tax payments for a certain period while they work in China. However, the definitions of “teachers and researchers” as well as the “institutions” they work at have not always been completely clear in the DTAs and during actual implementation. Therefore, China’s State Administration of Taxation (SAT) released a new announcement (SAT Announcement [2011] No.42) on July 25 to clarify related issues.

Teachers and researchers
The “teachers and researchers” term in DTAs – if not specifically provided – are only applicable to teachers and researchers employed at China’s domestic schools and research institutes. People who conduct teaching, lecturing or researching activities independently in China, or people who are sent by foreign educational institutes to teach at their cooperative programs in China are not eligible.

Teaching and researching activities
The “teaching, lecturing and researching activities” referred to in DTAs include various teaching, lecturing and researching activities as well as related planning, consultation and administration activities teachers and researchers conduct at home and abroad at the request of their employers. However, teachers and researchers who only conduct planning, consultation and administration activities, or who only give random lectures when conducting those activities, are not eligible for the tax exemption under the DTA terms.

Domestic schools and research institutes (domestic institutes)
The “domestic institutes” in DTAs shall be limited in the scope stipulated in a SAT circular issued in 1999 (guoshuihan [1999] No.37), which clarifies the scope of domestic institutes as follows:

  • Universities, colleges, schools and related educational institutes in DTAs refer to full-time institutions of higher learning that have the State Administration of Foreign Experts Affairs’ grant to employ foreign teachers as well as researchers and can offer college diplomas recognized by the Ministry of Education
  • Research institutes in DTAs refer to institutions that are involved in exclusive scientific research and development and are under the direct administration of State Council-controlled ministries, committees and institutes as well as provinces, autonomous areas, municipalities and cities with provincial-level economic management authority

Duration of stay calculation
The “duration of stay” or “tax exemption period” in DTAs – if not specifically stipulated in the DTAs or particularly negotiated by the two signing parties – shall be calculated according to an SAT circular published in 1986 (caishuixiezi [1986] No.30), which stipulates:

  • If a teacher or researcher comes from a country that has signed a DTA with China, and has stayed less than three years (or two years) before the DTA took effect, his/her tax exemption period shall be calculated from the day when the DTA takes effect; if a teacher or researcher comes to China after the DTA has taken effect, his/her tax exemption period shall be calculated from the day he/she arrives in China
  • Where a DTA stipulates that the income a teacher or researcher from the foreign country earns through conducting teaching or researching activities in China is tax exempt as long as the teacher or researcher has stayed in China for less than three (accumulative) years, the teacher or researcher can only enjoy the tax exemption if he/she has also been involved in teaching or researching activities in China for less than three accumulative years
  • Based on a DTA’s three-year tax exemption term for a foreign teacher or researcher, a teacher or researcher will be liable for tax payment starting from the fourth year when they conduct teaching or researching activities
  • A foreign teacher or researcher shall file tax declarations by himself/herself when his/her tax exemption period expires

Tax residents from the other party of the DTA signing who need to receive the corresponding tax treatment in related terms shall go through filing procedures according an SAT circular issued in 2009 (guoshuifa [2009] No.124).

The Announcement came into force on July 25 but is not retroactive to previously settled issues.

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