How do foreigners pay taxes in China

With the continuous development of China’s comprehensive national strength and the deepening of the overall national economic situation, more and more foreign capital and talents are pouring into the domestic market, and the number of foreign personnel who hold posts and engage in business activities within China is also increasing. So how to determine whether a foreigner is a resident taxpayer or a non resident taxpayer? How can foreigners enjoy China’s preferential tax policies?

Many enterprises have various questions. This article will explain them to you.

How to distinguish between resident individuals and non resident individuals?

According to Article 1 of the Individual Income Tax Law, an individual who has domicile in China or has no domicile but has resided in China for 183 days in a tax year is a resident individual.

1 Residence standard

“Domicile” identified here is a specific concept of the tax law, which refers to habitual residence in China due to registered residence, family, economic interests and other relations.

For example, if American A and Chinese B both work in China after marriage, and their children also study and live in China, they are individual residents even if they have a “residence” in China. On the contrary, American A bought a house when he was working in China, but after the work factor was eliminated, he did not need to stay in China, so he did not belong to a “resident”.

2. Living time standard

A tax year is an individual resident who has resided in China for 183 days in total (i.e. from January 1 to December 31 of the Gregorian calendar). It is worth noting that if the day of stay in China is less than 24 hours, the number of days in China will not be included.

For example, a foreign employee will work in a company in China from October 2020. In 2021, he will leave China for business expansion, but he will stay in China for 203 days, so he is a resident individual.

According to the regulations, individual residents are required to pay individual income tax in accordance with the relevant provisions of the Individual Income Tax Law of the People’s Republic of China on their income from within and outside China.

Can foreigners enjoy special additional deduction policy?

According to the Notice of the Ministry of Finance and the State Administration of Taxation on the Connection of Preferential Policies after the Amendment of the Individual Income Tax Law (CS [2018] No. 164), foreign individuals who meet the personal conditions of residents can choose to enjoy special additional deduction of individual income tax, housing subsidies, language training fees Tax exemption preferential policies for subsidies such as children’s education fees (Notice of the Ministry of Finance and the State Administration of Taxation on Several Policy Issues Concerning Individual Income Tax (CS [1994] No. 20) The Notice of the State Administration of Taxation on the Implementation of Exemption of Individual Income Tax on Subsidies Obtained by Foreign Individuals (Guo Shui Fa [1997] No. 54) and the Notice of the Ministry of Finance and the State Administration of Taxation on Exemption of Individual Income Tax on Subsidies Obtained by Foreign Individuals for Housing in Hong Kong and Macao (Cai Shui [2004] No. 29), however, the above two types of policies cannot be enjoyed at the same time. Once a foreign individual has chosen, it may not be changed within a tax year.

From January 1, 2022, foreign individuals will no longer enjoy the preferential tax exemption policy of housing subsidies, language training fees, and child education subsidies, but will enjoy special additional deductions as required.

Remind

The special additional deduction policy shall not be repeated with the above-mentioned foreign individual housing allowance, language training fee, child education allowance and tax exemption preferential policy.

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