Individual income tax adopts a source of income as a basis to determine whether the amount is payable. Usually, salaries obtained by an employee during the working period in China, no matter paid by domestic or foreign corporations or individual employers, are categorized as income derived from China.
As in regards to an expatriate, if his or her stay in China has amounted to 90 days consecutively or accumulated stay over 90 days during the year of assessment, or his or her stay in China has amounted to 183 days consecutively or accumulated stay over 183 days during the period required by the tax agreement, he or she shall be required to account for their actual salaries obtained during his or her working period in China paid by domestic or foreign corporations or employers for the purpose of individual income tax.
Tax liability = (amount of chargeable salaries obtained inside or outside the territory of the month × tax rate – quick deduction) × salaries obtained inside the territory of the month/ total amount of salaries obtained inside or outside the territory of the month × the number of working days inside the territory in the respective month/ the number of calendar days of the month
Individuals who have a ‘domicile or place of abode’ in China are those individuals who maintain residence in China because of their legal residency status, family, or economic ties and who habitually reside in China.
Chinese nationals, excluding residents of Hong Kong, Macau, and Taiwan, who are normally considered as non-China-domiciled individuals, are generally considered to have a domicile in China.
Foreign individuals and residents of Hong Kong, Macau, and Taiwan are taxed in accordance with their physical presence in China, as follows:
- Foreign individuals who reside in China for less than one year will be taxed only on their China-sourced income.
- Foreign individuals who reside in China for more than 183 days within a year but not more than Six consecutive ‘full’ years will be subject to tax on both their China-sourced income and their foreign-source income. However, as a concession, foreign-source income is taxed only to the extent of income paid and/or borne by a China entity.
- Foreign individuals who reside in China for more than Six consecutive ‘full’ years will be subject to IIT on their worldwide income from the Seventh consecutive ‘full’ year onward.
- Foreign individuals who travel in China and derive income from an overseas employer with no permanent establishment in China will be tax-exempt if they do not physically stay in China cumulatively for more than 90 days in a calendar year. If the individual is a tax resident of a country/region that has concluded a tax treaty/arrangement with China, the 90-day threshold is extended to 183 days during a calendar year or any 12 consecutive months, depending on the applicable tax treaty/arrangement.
The following categories of income, regardless of whether the payments are made within China or not, are considered China-sourced income:
- Income derived from employment or contracted labor services performed within the territory of China.
- Income derived from the operation of businesses within the territory of China.
- Rental income in relation to property used within the territory of China.
- Income derived from the transfer of real property, land use rights, or other property within the territory of China.
- Income derived through the grant of various franchises to be used within the territory of China.
- Interest and dividend income paid by companies, enterprises, other economic organizations, or individuals within the territory of China.
- Prizes won in lotteries or competitions hosted in China.
- Author’s remuneration derived from works published in China.