A piece of good news for those working in China.
They had feared that under the new Personal Income Tax Act (hereinafter referred to as the Individual Income Tax Act), foreign income could be taxed immediately in China, The Regulations on the Implementation of the Individual Income Tax Law of the People's Republic of China (Draft Revised Draft), published on October 20, dispelled this concern, hereinafter referred to as the Opinions on the Implementation of the Tax Law, Continue the existing preferential policies, simple understanding that five years of overseas income will not have to pay individual taxes.
In the administration of individual taxes in China, once a person is determined to be a tax resident, he or she shall pay Chinese individual income tax on the income he or she obtains from within or outside China. Non-resident individuals pay Chinese personal income tax only on the income they derive from China. As a result, the determination of individual Chinese tax residents determines which individuals are required to pay taxes in China on their global income.
The new tax law, which was passed by the Standing Committee of the National People's Congress not long ago, amends the criteria for judging tax residents in China. The new tax law was passed by the Standing Committee of the NPC. An individual who has a domicile in China or who has no domicile and has lived in China for a cumulative period of 183 days or more in a tax year shall be an individual resident. Compared with the old tax code, the standard for judging individual tax residents has been shortened from one year to 183 days of international practice.
That has had a big impact on overseas workers in China, who worry that the change will lead to an imminent tax on their overseas earnings in China.
Under the old Individual Tax Act, in order to attract foreign talent, there is a preferential policy for unincorporated individuals who constitute a resident taxpayer for less than five years, Individual income tax shall not be paid on income derived from sources outside the territory of China and paid by enterprises and individuals not within the territory of China, and individual income tax shall be paid on all income derived from the income of resident taxpayers from the sixth year when such income constitutes a resident taxpayer. To put it simply, a person outside China will not have to pay individual taxes in China for his or her overseas income within five years.
At that time, many overseas people were concerned about the continuity of this preferential policy. The relevant person in charge of the Ministry of Finance said on September 30 that the new tax law would consider continuing preferential arrangements for overseas persons, including those from Hong Kong, Macao and Taiwan. The draft Ordinance on the Implementation of the Tax Law has shifted the existing preferential policies.
If an individual resident who does not have a domicile within the territory of China has resided in China for a period of not less than five consecutive days or has completed five consecutive years but has had a single absence of more than 30 days during the period, Income derived from sources outside China may be paid only in respect of the portion paid by enterprises, institutions and other economic organizations within China or by individual residents, upon archival filing with the competent tax authority; A taxpayer who has resided in the country for a total of 183 consecutive years and has not left the country single time for more than 30 days within five years, From the sixth year onwards, if a person has resided in China for a cumulative period of 183 days, he shall pay individual income tax on all his income originating outside China.
The continuation of the five-year concession policy for foreign individuals reflects the encouragement of the legislative branch to the introduction of international talent. Stabilizing the preferential tax policies of the original expatriates will help strengthen the competitiveness of China in attracting international talents.
She reminded that the basic condition for an individual to enjoy the above-mentioned five-year concession policy was that the individual had "no residence" in China. This is a tax concept, not simply a passport, domicile, house purchase, etc. as determined by the single item "yes" or "no" Rather, it is a combination of other factors, such as the individual's economic interests in different countries, permanent residence, etc. Therefore, high net worth persons who have obtained overseas status should pay close attention to the determination of their own tax resident status and complete the recordation work required under the new tax law, so as to ensure that they enjoy tax relief on the premise of tax compliance.
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