2010 China Expat Income Tax Planning
Update (January 15, 2013): For information regarding expatriate income tax filing for the 2012 tax year, please click here.
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
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