Individual Income Tax for Foreign Individuals in China
Individual Income Tax for Foreign Individuals in China
Digest of “Regulations on the Implementation of the Individual Income Tax of P. R. China”
1. What Kind of Foreign Individuals Shall Pay Individual Income Tax in China?
1.1 Foreigners and residents of the regions of Hong Kong, Macau and Taiwan (hereinafter referred to as “Foreign Individuals”) who derive income from work or employment with enterprises or organizations within the territory of China.
1.2 Foreign individuals who derive income from personal services provided (including design work, shows, performances, advisory positions, brokerage services, agency services, etc.)
1.3 Foreign individuals who derive income from author’s remuneration, royalties, interest, dividends, bonuses, the lease of property, transfer of property, contingent income and income from other sources inside China.
Any non-Chinese passport holder working for a local company, a foreign company’s representative office, subs-company in China, or a Wholly Foreign Owned Enterprise in China, that person needs to pay his income tax to Chinese tax administration. In short, if the entity which you working for is registered in China, you should pay relating income tax.
2. How to Determine the Source Location of Wages and Salaries for Foreign Individuals?
For the wages and salaries derived by the foreign individuals, the place where he/she works is considered the source of income. The location of payment is not relevant in determining the income source.
In other words, wages and salaries derived by the foreign individual for work while inside China will be considered as China-based income, regardless of whether they are paid by enterprises or individuals inside or outside China. Wages and salaries derived by the foreign individual for work while outside China will be considered as income based outside China, regardless of whether they are paid by enterprises or individuals inside or outside China.
3. Tax Liabilities for Foreign Individuals According to the Different Living Time in China.
3.1 Individuals who are neither domiciled nor resident in China, or who are not domiciled and reside for less than one year in China, shall pay individual income tax for income derived from China.
3.2 Non-resident taxpayers working in China for less than 90 days or those from tax-treaty countries residing in China for less than 183 days shall pay individual income tax on income paid by their employers within China or on income not paid but incurred by foreign establishments located within China.
3.3 A non-resident taxpayer residing in China for more than 90 days (183 days for those from tax-treaty countries) but less than one year shall pay his individual income tax on all the income paid by his employers both inside and outside of China during his service in China.
3.4 Non-resident taxpayers working in China for less than 90 days or those from tax-treaty countries residing in China for less than 183 days shall pay individual income tax on income paid by their employers within China or on income not paid but incurred by foreign establishments located within China.
3.5 An individual without a permanent residence but having resided in China for a period ranging from one year to five years and with income from sources abroad may, upon approval by the tax authorities, pay individual income tax on the part paid by companies, enterprises and other economic institutions or individuals established in China; and in the case of having resided in China for more than five years, shall pay individual income tax on all of its income from overseas sources beginning from the sixth year.
4. Deduction of Personal Income Tax
At present, including but not limited to the following types of income by foreign individuals can be exempted from individual income tax:
4.1 Foreign individuals are exempted from individual income tax for their income from interest, dividends and bonuses from enterprises with foreign investments in China.
4.2 Foreign individual B or H shareholders are exempted from individual income tax on their dividends and bonuses from the share issuing enterprises in China.
4.3 Foreign individuals obtaining a housing allowance, meal allowance, relocation and laundry expenses in the form of non-cash or on an actual reimbursement basis.
4.4 Reasonable traveling allowance for business trips inside or outside of China.
4.5 The portions of home-leave expenses, language-training expenses, and education expenses for children that are approved by local tax authorities as reasonable.
4.6 Foreign staff in consulates and embassies can enjoy individual income tax exemption in accordance with the provisions of the related laws.
4.7 Experts who are sent to work in China under international exchange agreements
or by the United Nations.
5. Methods of Reporting and Paying Individual Income Tax for Foreign
Individuals
There are two methods of reporting and paying individual income tax for foreign individuals:
The paying enterprise or individual will act as the withholding agent and withhold the individual income tax upon payment of income. Taxpayers do not need to file a tax return
Taxpayers who derive wages and salaries without withholding agent, or from two or more locations, or from overseas should file the tax returns and pay the individual income tax to the tax authorities by themselves. Foreign individuals can appoint a tax agent to handle this matter.
Written by
Vincent Sun
Attorney at Law
Allen John Law Firm
Date: March 17, 2008