Expatriate Employees and Global Taxation
Eric Lin
As Chinese companies expand their businesses globally, expatriate employees’ individual income taxes become more critical for the employees themselves, and Chinese-owned foreign subsidiaries. Here, we’ll look at expatriate employees’ individual income taxes under the “Regulations for the Implementation of the Individual Income Tax Law of the People’s Republic of China” (Chinese IIT Rules).
In general, expatriate employees are hired by the Chinese parent company and work directly for the Chinese-owned foreign subsidiary. Expatriate employees are usually paid by the Chinese parent company or jointly paid by the Chinese parent company and the Chinese-owned foreign subsidiary. Employment with the Chinese-owned foreign subsidiary is usually from one to six years. The Chinese parent company typically pays for insurance, housing, or other similar benefits for expatriate employees.
Chinese IIT Rules
The Chinese IIT Rules state that Chinese individual income tax is imposed on any individuals who have a permanent residence within the territory of China. The State Administration of Taxation (SAT) defines the permanent residence as the relationship of household registration, family, and economic interest. This notice also clarifies that the permanent residence should apply to any individuals who temporally live abroad because of study, work and travel. Expatriate employees temporarily work in foreign countries and return to China by the end of foreign employment. Their household, families, and economic interests typically remain in China. Based on those facts, the expatriate employees are the individuals who have permanent residence within the territory of China.
The Chinese IIT Rules also define the taxable income as any income sourced within and outside of China. On January 17, 2020, the Department of Treasury and the SAT also clarified that taxpayers must include foreign wage income as part of their taxable income. The due date for the tax return is June 30 of the following year. The taxpayer should also consider the following items to file their tax return:
- Foreign tax credits
- Tax treaty benefits
- Documentation requirements
The foreign income regulations are becoming more complicated for expatriate employees. It is important to file Chinese income tax returns on time in order to maximize tax benefits. For additional information, click here to contact us. We look forward to speaking with you soon.