Last week one of my client, an expatriate in China, sent an email to ask for legal advice regarding his individual income tax obligation and to confirm whether he is entitled to any tax refunds since he is going to leave China after ten years working here.
How to determine, a foreign employee’s individual income tax obligation? There are general provisions in the
Individual Income Tax Law of China
, any individual who has a domicile within the territory of China or who has no domicile but has stayed in the territory of China for one year or longer shall pay individual income tax on any income obtained in or outside of the territory of China. Further, any individual who has no domicile in China, and does not stay within the territory of China or who has no domicile in China but has stayed within the territory of China for less than one year shall pay individual income tax for any income obtained within the territory of China.
So, we can determine whether a foreign employee shall pay income tax in China depends on three factors:
- Where he obtains the income, in China or out of China?
- How long has he stayed in China?
- Who paid him the income?
As to this particular client, he had lived and worked in China for ten years, so we can definitely say that he should pay income tax for his income both in China and out of China. That is to say, he is required to pay income tax for salary from his employer in China, but also, any income from out of China, for example if he has an apartment out of China which is rented out. We find Most China expats aren’t ware of these tax obligations.
Things can become complicated in practice as the three determining factors can be very different from case to case, and some people just have convoluted financial situations. There are also a lot of much more detailed provisions in relevant laws and regulations. The true China income tax bill can only be determined by consultations with China legal and financial professionals.
While there are no income tax “refunds” as are seen in the USA, there are certain preferential policies, for income taxes on foreigners in China. We will take a look at these in a coming post.