Page 32 - Doing Business in China

TAXATION

Duration of stay and income source
Previously, non-domiciled foreign individuals who reside in China for more than one year but less than five
consecutive years are subject to tax on their China-sourced income and the portion of foreign-sourced
income that is paid or borne by units or individuals located in China� Non-domiciled foreign individuals who
reside in China for more than five consecutive years are subject to tax, starting from the sixth year, on their
global income for every “full year”�

According to the new IIT law, non-domiciled foreign individuals who stay in China for 183 days or more within a
calendar year will be deemed as a China resident and subject to China IIT on relevant income globally�

According to the new six-year ruling for expatriates that took effect in 2019, overseas incomes (such as
capital gain on property transfer, dividend income derived from overseas entity, etc�) of expatriates who
stay in China for not more than six years may be exempted from China IIT if they have completed the tax
registration with the relevant tax bureau departments�

Income sources of directors’, supervisors’ and senior executives’ remuneration
If the expatriate assumes the role of a director, supervisor or any other senior executive position in a domestic
resident enterprise, and receives director fees, supervisor fees, wages, salaries or other similar remuneration
(including bonuses and stock option incentives), such income is deemed to be a source from China, regardless
of where the expatriate fulfils his or her duty� This applies to income paid directly or borne by the domestic
resident enterprise�

Senior executives refer to senior management, general and deputy (general) managers, chief engineers of all
functions, directors and other similar management positions�

Individuals without residence in China may receive wages and salaries for work in a China-based entity related
to an overseas employer� If the overseas employer pays the wages and salaries for such work in whole or in
part, such individuals must either declare to the Chinese tax authority that they will pay IIT directly or the
China-based entity will pay the IIT on behalf of their employee�

The China-based entity is required to report relevant information to the tax authority in charge within 15 days
after the end of the month when the relevant income is paid� These include work arrangements made by the
China-based entity and related overseas employer for individuals without residence in China, payment status
of relevant wages and salaries borne by the related overseas party, and the individual’s contact information�

b) Tax registration
Expatriates who are liable to pay IIT are required to register with the relevant tax authority� The tax authority
will allocate a unique taxpayer identification number for the expatriate’s monthly IIT filing purposes�

What must be included under employment income?
▪ Wages ▪ Dividends ▪ Long-service awards

▪ Salaries ▪ Various allowances ▪ Severance payments
▪ Bonuses ▪ Subsidies ▪ Personal taxes paid by employers on
behalf of employees
▪ Year-end bonuses ▪ Stock options

Doing Business in China 2023 | 31