Income tax

On 16 and 17 March 2019, the Chinese Ministry of Finance and the State Tax Administration published two announcements containing guidelines for non-domiciled taxpayers under the new IIT Law, which entered into force in January 2019. The announcements will apply retroactively from 1 January 2019.

Announcement No. 34 – “Six-Year-Rule”

Announcement No. 34 provides guidance on the standards to be applied for determining the length of stay of non-residents in China. It also provides information on the relevant conditions for claiming IIT exemption for foreign source income.

The Announcement No. 34 clarified that taxable income from employment in the PRC earned by non-domiciled individuals (which will apply to most foreign taxpayers) employed simultaneously by domestic and foreign companies or employed exclusively abroad will be determined on the basis of the calendar days of the individual’s stay in the PRC.

How to count the days of stay in China?

Under the old rules, the date of arrival and departure in China was counted as one day. Under the new rules, a day on which the person is not physically present in China for 24 hours does not count as a day in China.

“Six Year Rule” – taxation of worldwide income 

China applies s six-year rule to determine if a taxpayer’s foreign income is exempt from Chinese IIT or not in a given tax year. In particular, a foreign taxpayer’s worldwide income is subject to taxation in China if he has resided in China for 183 days or more each year for a period of six consecutive years immediately preceding the year of assessment.

As announced in mid-March, the count for the six-year rule will start retroactively on 1 January 2019 for all non-domiciled foreigners in China. This is a major concession by the Chinese state, as the tax clock will be reset to zero for all foreigner taxpayers, including those who have been in China for more than 6 years. As a result, foreign income earned by non-domiciled taxpayers will be excluded from the Chinese IIT for tax years up to and including 2024. The count for the six-year-rule can be set to zero at any time by leaving  China in a single trip for more than 30 consecutive days in any year.

Announcement No. 35 – Calculating taxable income of a non-domiciled taxpayer

Announcement No. 35 contains rules and methods for calculating the taxable income of a non-domiciled individual. It provides information on the application of the Double Taxation Convention to non-domiciled taxpayers and rules for the collection and administration of the IIT of the People’s Republic of China that apply.

Depending on the position held by a non-domiciled taxpayer and the duration of his/her physical presence in the PRC, taxable income from employment in the PRC will be calculated according to one of the formulas used in the table below.

Download the above table in PDF format here.

For more detailed information and an assessment of your individual tax situation, please contact us to schedule a consultation with one of our tax experts.

Iris Wang – Tax Manager

Iris has more than nine years of experience in tax compliance and consulting services. Her field of expertise is tax planning and optimization for expatriates, payroll and individual income tax consulting and structuring services. Before joining ECOVIS Beijing, she worked in Big Four companies where she advised many international clients.

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