Tax residence in China has been changed under the the recently passed individual income tax (IIT) law. Under the new IIT law, an individual who resides in China for 183-days or more will be considered a tax resident and be liable to PRC IIT on their global income as of January 1, 2019. Such changes are set to have substantial impact on foreigners living in China as it imposes a more stringent test with a lower threshold period as to when a foreigner will be regarded as a tax resident. The following are the relevant information for your reference.
New Rule on Tax Residency
The 183-day-rule is a tax residency threshold commonly adopted by many countries across the world and will see a shift in China’s current tax practices to more internationally recognized practices. This will also allow China’s domestic tax practices to better accord with Double Taxation Agreements (DTAs) made with other countries.
183-day Residency Rule
Under Article 1 of the IIT Amendments, a “tax-resident” refers to:
(1) A person who has domicile in China, or
(2) An individual who does not have domicile in China but has resided in the country for (an accumulated) 183 days or more within a tax year (January 1 to December 31).
The new 183-day rule will replace the previous one-year rule, essentially cutting in half the amount of time one has to spend in China to be considered a tax resident.
Impact on Foreign Expats
With regard to the new rule on tax residence in China, how will IIT be collected from non-domicile expats? How will foreigners be able to reclaim tax through DTAs? Will the rule hold any implications on an individual’s visa status?
It is anticipated that further bylaws will be released by the State Administration of Taxation later this year. Meanwhile, businesses should continuously monitor for new IIT updates and prepare accordingly.
The new tax brackets and standard deduction amounts will take effect on Monday, October 1, 2018. The remainder of the new personal income tax laws including the residency rules will come into force as of January 1, 2019.
The new rule on tax residency in China will make it harder for expatriates to avoid paying tax on their worldwide income tax liability by removing this loophole. Should you need any help, Tannet’s financial and tax team is always be your side.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
Previous：China Corporate Income Tax (CIT)
Next：China Accounting and Payroll Services