When working in China, it is essential you ensure your tax affairs comply with the local rules and regulations. Failure to do so means that you are breaking the law and that can result in heavy penalties. This article aims to provide foreign expats basic knowledge and some planning tips regarding your China individual income tax obligation.
Part 1: When will you be liable for China Individual Income Tax (IIT)?
If you are domiciled in China, you are subject to tax on your worldwide income. If you, as an expatriate, have lived in China for more than five full consecutive years, you are subject to tax on your worldwide income from year six.
If you, as an expatriate, have lived in China for one year more but less than five years, you are subject to tax on your worldwide income. However, foreign-sourced income exemption can be obtained from the competent tax authorities if the foreign-sourced income is not paid by individuals or enterprises in China.
If you, as an expatriate, have lived in China for more than 90 days or more than 183 days and are from a treaty country, you are subject to tax on China-sourced income only.
If you are just a temporary visitor and only visit China for less than 90 days or 183 days and are from a treaty country, you are subject to China tax on employment income if it is paid or borne by any form of entities in China.
If you are a chief representative or registered representative of a rep office, you are deemed to be subject to China tax from day one of your assignment.
If you are an expatriate and hold a senior management position in a Chinese domestic enterprise, you are subject to tax on all income derived from this enterprise during the entire period of your employment.
Part 2: What is the Tax Compliance Requirement in China for Foreigners?
Tax Registration
In China, the tax registration requirements may vary depending on the requirements of the local tax offices. For employees of a JV, resident representatives of foreign businesses and other individuals holding resident permits, tax registration need to be completed upon entry into China. Other foreign individuals are required to register when they become liable to tax.
Filing Tax Returns
Individual income tax withholding return: filed by withholding agent and tax remitted monthly within 15 days after the end of each month.
Individual Income Tax Monthly Return: used by Self-reporting individual taxpayers. The return shall be filed by taxpayers and tax remitted within 15 days after the end of each tax month.
Individual Income Tax Annual Return: used by individual taxpayers to report annual income from sources outside China. The return shall be filed by taxpayers and tax remitted, within 30 days after the end of a taxable year.
Self-file Tax returns of Tax Bearers:
- If your annual income is more than RMB 120,000
- If you receive employment income from two or more employers in China
- If you receive income derived from outside China
- If you do not have withholding agent
Other situations specified by the State Council.
The return shall be filed and tax remitted, within 3 months after end of tax year.
Part 3: Salary Package Planning – Tax Free Items you can receive from your employers
The monthly tax free threshold for foreigners is RMB 4,800. Based on the tax laws, foreign expat can apply tax free allowance with the tax bureaus. There are 8 categories of tax free allowances for foreign expats:
- Housing allowance
- Food allowance
- Relocation allowance
- laundry allowance
- travel allowance
- home leave allowance
- language training allowance
- Children education allowance
There are also other forms of reimbursement and fringe benefits that are IIT free.
Part 4: Opportunities for monthly cash refund from Taxman in China
The tax refund is a special tax incentive offered by some regional tax bureaus in order to attract people to pay IIT to their regions. It is a monthly cash refund provided by the regional taxman into taxpayers' bank accounts directly.
The refund procedures require a special tax agent to lodge your monthly income tax returns with the regional tax bureaus that offer cash rebate incentives, your employers as your withholding agent to make the IIT withholding payments to the regional tax bureaus based on the Tax Payment Notices, and finally taxpayers to receive a percentage of cash refund into their bank accounts.
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