China makes concessions to expats in new tax law

Pedro Gonçalves
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China makes concessions to expats in new tax law

China government has softened its personal income tax reform programme by making significant concessions to foreign workers in the final version of the fiscal reform now in effect.  Although expats will still be required to pay tax on their worldwide income, Beijing has left room for foreign workers to avoid the extra payments. 

Under the new rules,  a "resident taxpayer" is defined as anyone who is either domiciled in mainland China, or non-domiciled but spends 183 days or more there over the course of a calendar year.

Previously, foreigners - a term that includes residents of Hong Kong, Taiwan and Macau - had to spend more than 12 months in the country before being classed as a resident for tax purposes. The difference between a resident and non-resident taxpayer is that the former is liable to pay tax on their global income, not just the money they make in China.

Foreign nationals' entitlement to tax exemption for their foreign-source income was to be limited to this five-year period. This new rule would make it much easier for a non-China-domiciled individual to be classed as tax resident. Now, in an effort to attract foreign skilled workers to the jurisdiction, this exemption period has been extended to six years.

According to a notice published by the State Administration of Taxation last month, resident taxpayers who spend more than 30 consecutive days outside the country in any given six-year period are exempt from having to declare their global earnings. In the past, they had to leave the country for 30 days or more every five years to gain the exemption, so the revision gives them 2% more time to meet the obligation, as the SCMP reports.

Other amendments to the new rules extend the scope of itemised deductions from taxable income, and remove the rule that would have disallowed the offsetting of losses incurred by foreign business branches against domestic business profits.

As for bonus payments and equity incentives, the tax authority said last week that it would exclude these from the new tax rules for a further three years.