China’s new income tax law could be costly for foreign workers, but there’s good news too
- Non-nationals who spend more than six months working in China are now classed as residents for tax purposes and required to declare their worldwide income
- But an extended trip back home once every six years is all it takes to make the headache go away
Foreigners who live and work in mainland China for prolonged periods will be required to pay tax on their worldwide income under a new law that took effect on Tuesday. But while the new regulations might at first seem punishing, Beijing has left plenty of room for non-natives to avoid the extra payments.
Approved at the end of August, the new legislation defines a “resident taxpayer” 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.
But it is not all bad news for foreigners working in the world’s most populous country, as with the new tax law comes an improved exemption to it.
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.