Recently, a series of policies on the reform of the individual income tax have been issued one after another, and the tax obligation for overseas persons working in China (including Hong Kong, Macao and Taiwan residents, the same as below) has been loosened. For example, the tax exemption condition has been changed from constituting a resident taxpayer for less than 5 years to constituting a resident taxpayer for less than 6 consecutive years which mean, in any of these years, as long as the taxpayer leaves China for over 30 days, the consecutive years shall be recounted. In addition, the tax exemption management method has been changed from approval to filing. The following will give a brief introduction to the new individual income tax policy.
1. Two taxpayer identity concepts to be distinguished by overseas persons: resident taxpayers and non-resident taxpayers
The significance of the identification of taxpayers lies in that, if defined as resident taxpayers, they must pay individual income tax on all the income obtained in and outside China. If they are defined as a non-resident taxpayer, it is only subject to individual income tax on income obtained within China.
The identity of the taxpayer has nothing to do with nationality. There are two standards for judgment:
Resident taxpayers are those who are domiciled in China, i.e. habitually residing inside China due to household registration, family or economic ties.
For individuals who live within China due to reasons like study, work, visiting relatives or tour, if after the completion of these activities, the reasons for them to live within China no longer exist and therefore they must return to live outside China, then China is not the taxpayer's habitual residence, in which case they shall not be seen as domiciled in China.
Individuals who are not domiciled in China but have resided in the aggregate for 183 days or more in a tax year in China is a resident taxpayer.
Please note that the number of days of residence in China refers to the number of days of stay in China, that is, only a 24-hour stay in China shall be counted into the number of days of residence in China, otherwise it shall not be counted in.
2. Differentiated tax policy of wages and salaries for overseas persons who are not domiciled in China
For overseas persons who do not have a domicile in China, they shall apply different tax policy of wages and salaries according to their accumulative days of residence in China. Please see the table below for details.
1China-sourced income and paid or borne by overseas employers: his or her income which is derived from inside China and paid by an employer outside China and not borne by the employer's Chinese establishment or business place.
2 One tax year: from January 1st to December 31st.
3Precondition for tax exemption: filing with the competent tax authority.
4Calculation of 6 consecutive years: where the taxpayer had departed from China for 30 days or more in any of the 6 years, the consecutive years shall be recalculated. Furthermore, the period of six years shall be counted from 1st January, 2019, and years before 2019 shall not be taken into account.
Applicable Policy for Non-resident Taxpayers
Please see the first attached photo
Applicable Policy for Resident Taxpayers
Please see the second attached photo
The new policy came into force on January 1, 2019. Non-resident taxpayers, who paid more tax for income obtained after January 1, 2019 in accordance with the original regulations, is entitled to apply for tax refund
3. Judgment standards for the source of taxable income
The wages and salaries for working time within China are the so-called China-sourced wages and salaries.
Working time within China, namely working days within China, includes not only the actual working days, but also days of public holidays, personal leave, training at home and abroad during the working period in China.
It should be noted that, for directors, supervisors, corporate (general) managers and deputy (general) managers, chief executives, and other similar management positions of resident enterprises inside China, their director fees, supervisory fees, wages and salaries and alike paid or borne by resident enterprises inside China are all considered as China-sourced income, regardless of whether or not they perform their duties within the territory.
4. Subsidies for overseas high-end talent and professionals in short supply working in the Greater Bay Area are exempt from individual income tax
From January 1, 2019 to December 31, 2023, overseas high-end talent and professionals in short supply working in nine cities of Pearl River Delta in the Greater Bay Area will be granted subsidies. The subsidies are based on the individual income tax differentials between the Chinese mainland and Hong Kong and is exempt from paying individual income tax. The standards and subsidies shall be implemented in accordance with the relevant regulations of Guangdong Province and Shenzhen City.
The above opinions are for reference only and should not be used as a basis for any business decisions.
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