Visa & Tax Implications for Same Sex Marriage Partners in China

Op/Ed by Chris Devonshire-Ellis

An important aspect of the recent U.S. Supreme Court ruling concerning same-sex marriage is the financial burden that non-recognizance places upon a couple. While traditional married couples have long been able to claim tax relief – also the case in China – such financial benefits have been denied same sex couples. The ruling therefore creates tax equality for all couples who have undergone a legal partnership.

The issue has some relevance to expatriates in China. Although the country neither recognizes same-sex marriage or civil unions, it can impact upon same-sex couples who wish to be together when one partner is working in China. Under these circumstances, currently only Beijing Municipality and Hong Kong will grant “spousal visas” to gay couples. This document, called “dependent resident status” in China, permits couples to live together. However, it also only permits one partner to work.

Beijing is thus far the only mainland Chinese city that provides such a scheme, but the visa provision is still not consistent with China’s social insurance contributions, which were broadened to include expatriates back in 2011. Accordingly, there is some confusion in China about how to unite the immigration status of same sex working couples with mandatory medical and related insurance structures, let alone income tax. This has resulted in a typical China impasse where for the time being, no-one initiates any further laws or relaxes the status quo until the entire issue is fully debated and understood. Homosexuality, even in China’s large cities, is still a social issue. China’s reticence here is probably for the best at this moment. 

Gay couples in Hong Kong can apply for an  “extended visitor’s visa” or “de facto relationship visa” for the non-working partner. This visa must be renewed every six months and does not provide the right to work or qualify for permanent residency.

Hong Kong de-criminalized homosexuality in 1991, with mainland China following in 1997. However, should China relax its current stance towards same-sex marriage, how would this play out upon the income tax system? Below, we look at how the United States’ legislation affected the tax position of gay couples who have entered into a legally binding marriage.  

These effects have their basis in the U.S. Supreme Court Ruling of Obergefell v. Hodges (same sex couples have constitutional right to marry)

Income Tax Effects

Before Obergefell v. Hodges                                                                                              

1. Same sex couples living in states that did not allow same sex marriage could file federal taxes as married (either jointly or separately), but were still required to file as singles for state tax.
2. This subjected same sex couples to additional fees, as well as costs for tax preparation. It also exposed same sex couples to increase risk of tax liability.

After Obergefell v. Hodges:

1. Same sex married couples in all states are required to file federal and state taxes as married (either jointly or separately).
2. This makes same sex married couples eligible for spousal tax breaks on a state level.
3. Some couples may also be eligible to file for refunds for the number of years married in a state that had higher state tax liability before same sex marriage was legalized.
4. Same sex married couples may be moved up to a higher tax bracket.
5. This can occur when couples have similar incomes (known as the “marriage penalty”).

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Health Care Benefits may affect Income Taxes

Before Obergefell v. Hodges

1. Many employers offered domestic partner benefits, which provided health care benefits for an employee’s partner.
2. Domestic partner benefits were taxable income for employee (because the couple was not married)

After Obergefell v. Hodges

1. Same sex employees are also entitled to receive spousal coverage (if offered)
2. Not taxable
3. May be cheaper than domestic partner coverage
4. Employers may diminish domestic partner benefits after the Supreme Court Ruling, as many employers instated them to provide same sex couples equal health benefits as opposite sex couples
5. This may present difficulties for unmarried same sex as well as opposite sex couples relying on domestic partner benefits.

Estate and Retirement Planning

After Obergefell v. Hodges

1. Same sex married couples may send or accept unlimited gifts of bequests to one another without state or federal gift or estate tax charges.
2. Unused estate tax exemption may also be handed to the surviving spouse.
3. A retired individual in a same sex marriage may opt for a joint or survivor benefit with his or her spouse.
4. Same sex couples may now collect Social Security spousal or survival benefits.
5. This can provide same sex couples thousands of dollars.
6. A spouse may receive up to 50 percent of the other spouse’s benefits if it is more than his or her own.
7. A surviving spouse may receive the deceased spouse social security if the amount is higher than his or her own.

What Employers Should Consider

1. Same sex marriage legalization may cause increase in employer costs of spousal benefits.
2. Health care groups must now cover same sex and opposite sex couples identically.
3. Any employer subject to the Family and Medical Leave Act, (in China, this would be social insurance contributions) or the state family and medical leave laws must provide care for same sex married couples as well
4. Employers will no longer be burdened by applying different benefits to employees or tax rules based on whether or not the employee is in an opposite or same sex marriage.

As can be seen, the U.S. Supreme Court ruling on same-sex marriage considerably eased the tax and medical services financial burden on same-sex cohabiting partners upon marriage. The impact in China, as gay expatriate couples come to live and work in the country, may well be felt both in terms of obtaining dependence visas, as well as in tax and medical insurance.

Currently, it is social rather than an initial regulatory barrier that is preventing China from passing laws that would legalize same-sex marriage. Beijing remains wary of passing legislation that would offend its society at large. This is only likely to change, and a window for same-sex equality to be opened, when China reforms its social security apparatus. That issue, with an aging population and vested interests at play in who controls China’s pension funds and social insurance programs, is right at the heart of reforms at the moment. Yet to date, getting an acceptable, insurance-based social security network in place and weeding out the corruption that no doubt exists within it will be a longer term goal for China. When it happens, financial and social insurance equality amongst same-sex couples will take another small step forward in China.

Employing Foreign Nationals in China
In this issue of China Briefing, we have set out to produce a guide to employing foreign nationals in China, from the initial step of applying for work visas, to more advanced subjects such as determining IIT liability and optimizing employee income packages for tax efficiency. Lastly, recognizing that few foreigners immigrate to China on a permanent basis, we provide an overview of methods for remitting RMB abroad.

Social Insurance in China
In this issue of China Briefing Magazine, we introduce China’s current social insurance system and provide an update on the status of foreigners’ participation in the system. We also include a comprehensive chart of updated average wages across China, which is used to calculate social insurance contribution floors and ceilings. We hope this will give you a better understanding of the system in China.

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