{"id":1585,"date":"2023-10-24T03:59:28","date_gmt":"2023-10-23T19:59:28","guid":{"rendered":"https:\/\/www.hiredchina.com\/articles\/2023\/10\/24\/china-to-cancel-5-year-tax-rule-for-foreigners-2\/"},"modified":"2024-06-02T19:17:43","modified_gmt":"2024-06-02T11:17:43","slug":"china-to-cancel-5-year-tax-rule-for-foreigners-2","status":"publish","type":"post","link":"https:\/\/www.hiredchina.com\/articles\/china-to-cancel-5-year-tax-rule-for-foreigners-2\/","title":{"rendered":"China to Cancel 5-Year Tax Rule for Foreigners"},"content":{"rendered":"

On June 19, 2018, China\u2019s Ministry of Finance has unveiled a series of Draft Amendments to its individual income tax<\/a> (IIT) Laws. These proposed changes are aimed at easing the tax burden for lower-income earners in particular<\/a>, while taking a tougher stanc<\/p><\/blockquote>\n

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On June 19, 2018, China\u2019s Ministry of Finance has unveiled a series of Draft Amendments to its individual income tax (IIT) Laws.\u00a0These proposed changes are aimed at easing the tax burden for lower-income earners in\u00a0particular,\u00a0while taking a tougher stance on both foreigner workers and high-income earners. We summarized part of the\u00a0Draft Amendments that may affect foreign individuals the most.<\/p>\n

The effects of the proposed changes are fourfold:<\/p>\n

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Already confirmed by the State Council, the Draft Amendments have now been published for public opinion and will undergo further revision before finally coming into effect on\u00a0<\/span>January 1, 2019.<\/strong><\/p>\n

If these proposals are enacted, foreign companies should pay special attention to changes affecting the timing of the tax levy on foreign employees, foreign labor costs, contract profitability, and budgeting requirements, as well as the rippling effects they have on withholding and tax equalizations.<\/p>\n

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New IIT system for foreigners<\/strong><\/span><\/span><\/p>\n

Foreigners living and working in China will now be subject to the 183-day test\u2014a rule that draws upon recognized international practices. This test deems a foreign individual who resides in China for 183 days or more in a year a \u2018resident\u2019 and subjects them to Chinese tax on their worldwide income.<\/p>\n

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How to tell the tax identity of foreign individuals?<\/strong>
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Resident taxpayers<\/b><\/p>\n

Foreign individuals reside in China \u2265 183 days (within a tax year\uff09<\/p>\n

Non-resident taxpayers<\/strong><\/p>\n

Foreign individuals reside in China \uff1c 183 days (within a tax year\uff09<\/p>\n

This new 183-day-test will replace the previous five-year rule under which a foreign individual will be subject to Chinese tax on their worldwide income if they live in China for more than five years.<\/p>\n

Previously, IIT liability contained a well-known loophole whereby foreigners could \u2018reset the clock\u2019. The amendments in effect<\/a> will make it harder for foreigners to avoid paying tax on their worldwide income tax liability by removing this loophole.<\/p>\n

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The graphic below is the CURRENT calculation of taxable income of foreign individuals.\u00a0Under the new system, a foreign individual who resides in China for 183 days or more in a year a \u2018resident\u2019 and subjects them to Chinese tax on their worldwide income.<\/span><\/p>\n

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Note:<\/span><\/b><\/p>\n