Published on and written by Cyril Jarnias
China’s tax environment, already complex for its residents, proves even more challenging for non-residents, requiring a precise understanding of the specific reporting obligations imposed by the country.
As China occupies an increasingly central role in the global economy, understanding the details of the tax system applicable to individuals living outside its borders becomes imperative to avoid penalties and optimize investments.
This article aims to demystify the main tax reporting requirements in China for non-residents, while offering practical advice for effectively navigating this financial maze.
Understanding Tax for Non-Residents in China
Tax Residency Criteria
- Tax Resident: Any person with a permanent home in China, or staying there at least 183 days per year during a tax year, is considered a Chinese tax resident.
- Non-Tax Resident: Any person without a permanent home in China, or staying there less than 183 days per year, is considered a non-tax resident.
- Specific rule: A foreigner becomes taxable on worldwide income after six consecutive years of residence exceeding 183 days per year in China, unless they leave China for at least 30 consecutive days once during this period.
| Status | Main Criterion | Taxation |
|---|---|---|
| Tax Resident | Permanent home or ≥183 days/year | Worldwide income |
| Non-Tax Resident | No permanent home, <183 days/year | China-source income only |
Non-residents are taxed only on China-source income. Compliance with reporting rules and consideration of international tax treaties are essential to avoid penalties and optimize taxation.
Good to Know:
To understand non-resident tax in China, it’s crucial to know that the country considers as non-residents individuals who spend less than 183 days in the tax year in China and don’t have a permanent home. Non-residents are taxed only on their China-source income, including salaries, business profits, and rental income. Rates can vary, with wages often taxed between 3% and 45%, while investment income benefits from a fixed 20% rate. Reporting obligations include the annual IIT form to be submitted before the end of March, with penalties for late filing or omission. China has double taxation agreements with several countries, like France and the UK, which can potentially reduce tax burden by avoiding double taxation. For example, a French employee spending six months in Shanghai may not be taxed on their non-China-source income under the China-France agreement.
Avoiding Double Taxation: Tax Treaties Between China and Other Countries
Main Objectives of Tax Treaties
- Prevention of Double Taxation: Avoid the same income being taxed in two different states.
- Combating Tax Evasion: Prevent fraud and abusive optimization strategies, particularly through anti-abuse provisions and information exchange.
- Promotion of Economic Exchanges: Facilitate investments and capital flows by ensuring legal and tax security for international operators.
- Strengthening Tax Cooperation: Improve transparency and collaboration between tax administrations.
Examples of Countries with Tax Treaties Signed with China
| Country | Signing Date | Notable Features |
|---|---|---|
| France | 11/26/2013 | Reduced withholding tax rates, enhanced anti-evasion measures |
| Germany | 06/10/2014 | Alignment with OECD model, anti-abuse measures |
| United Kingdom | 06/27/2011 | Dispute resolution mechanisms |
| Singapore | 07/11/2007 | Relief on dividends and interest |
Mechanisms to Avoid Double Taxation
- Tax Credit: Tax paid in the source state is credited against tax due in the residence state.
- Exemption: Certain foreign-source income is exempt in the residence state.
- Shared Taxation: Certain income (dividends, interest, royalties) is taxed at limited rates in the source state and the remainder in the residence state.
| Mechanism | Description |
|---|---|
| Tax Credit | Credit for tax paid abroad against domestic tax |
| Exemption | Exclusion of certain foreign income from domestic taxable base |
| Shared Taxation | Allocation of taxing rights between both states |
Impact of Treaties on Non-Residents in China
- Reporting Obligations: Non-residents must declare China-source income but often benefit from reduced withholding tax rates thanks to the treaty.
- Tax Benefits:
- Reduced tax rates on dividends, interest, and royalties.
- Elimination of double taxation through tax credit or exemption.
- Access to tax dispute resolution mechanisms.
- Legal Security: Clear rules set by the treaty limit the risk of unexpected tax adjustments.
Effects on Trade and Economic Relations
- Facilitation of Foreign Direct Investment: Companies benefit from a predictable and stable tax framework.
- Strengthening Economic Cooperation: Treaties encourage the development of commercial and technological relations.
- Improved Transparency: Information exchange and administrative cooperation provisions reduce tax uncertainty.
Tax treaties signed by China, particularly with major partners like France, aim to secure international operations, stimulate exchanges, and effectively combat fraud and tax evasion.
Good to Know:
Tax treaties signed between China and various countries like France, the United States, and Australia primarily aim to prevent double taxation and counter tax evasion. These agreements use mechanisms such as the tax credit, which allows non-residents to recover part of taxes paid abroad, and exemption, which avoids double taxation on certain income. Thanks to these treaties, non-residents can benefit from simplified reporting obligations in China, thereby reducing the overall tax burden. By facilitating trade, these agreements strengthen economic relations and encourage cross-border investments, offering businesses more stable and predictable tax conditions.
Reporting Obligations for Non-Resident Expatriates in China
Tax Reporting Obligations for Non-Resident Expatriates in China
Non-resident expatriates in China are subject to various reporting obligations that vary depending on the nature and amount of income received, as well as its source.
Types of Income to Report
- China-source income: All income generated in China (salaries, fees, dividends, interest) must be reported.
- Foreign income: In specific cases (e.g., multiple employers or absence of withholding agent), certain income received outside China may also require reporting.
- Bilateral tax treaties determine whether income should be reported only in China or in the home country.
| Income Type | Mandatory Reporting? | Notes |
|---|---|---|
| Salary from Chinese employer | Yes | Withheld at source by employer |
| Salary without paying agent | Yes | Voluntary filing required |
| Income exceeding 120,000 RMB/year | Yes (mandatory annual filing) | Even if already reported monthly |
| Multiple income sources (multiple local employers) | Yes | Monthly obligation |
| Foreign income | Sometimes | Depending on tax treaty and specific situations |
Thresholds Triggering Reporting Obligation
- Any person earning more than 120,000 RMB per year must mandatorily file an additional annual return, even if taxes were already withheld at source each month.
- Other cases also require filing:
- Receiving salaries/wages from multiple entities
- Absence of withholding agent
- Receiving income outside Chinese territory while subject to local tax
Required Forms and Associated Deadlines
- Main form used: “Individual Income Tax Return” (Form A) – Two copies must be filed.
- In case of exemption/reduction, a “Reduction and Exemption Matters Form” must also be provided.
- Most procedures are free and processed immediately when filed at competent tax offices.
Deadlines:
- Monthly filings:
- Company pays withheld tax within 15 days after salary payment
- If no paying agent: voluntary filing immediately after income receipt
- Annual filings:
- For those exceeding 120,000 RMB/year: filing within three months after end of tax year
| Situation | Form/Procedure | Deadline |
|---|---|---|
| Income > 120k RMB/year | Annual + monthly filing | Within 3 months after calendar year end |
| Multiple employers or sources | Monthly filing | After receipt |
| Without paying agent | Voluntary filing | Immediately |
For companies/entities:
- They have legal obligation:
- To withhold then directly remit due tax each month for their expatriate employees;
- To provide non-resident employees with an annual tax certificate useful for their own international procedures.
For individuals:
- They remain personally responsible if they receive payments without an agent performing withholding;
- They must carefully verify any situation involving multiple or mixed sources/income to avoid any omission.
Penalties for Non-Compliance
In case of failure to meet reporting obligations:
- Financial fines proportional to evaded amount
- Additional penalties for delay/administrative sanctions
- Increased risk during subsequent tax audit potentially leading to administrative expulsion
Common examples:
- Forgetting/misunderstanding regarding need for annual filing once threshold is crossed even with automatic monthly withholding;
- Accidental non-filing when having multiple local salary sources;
- Confusion between local Chinese rules and those provided by bilateral tax treaty sometimes causing double taxation or unintentional omission;
- Poor estimation when certain bonuses/exceptional compensation nevertheless fall under local taxable regime;
Practical Tips
- Always verify your actual tax status regarding both Chinese domestic law and applicable tax treaties with your home country;
Ensure that in case of total/precarious/incomplete/unique paying agent absence, you promptly perform your own voluntary procedures with competent tax services.
Systematically keep all supporting documents related to payment/withholding/filings made as well as a signed/officially stamped copy when possible.
Ideally use a specialized tax advisor well-versed in both your international and local situation to:
- Limit litigation risks,
- Optimize your overall tax burden,
- Protect against any untimely double taxation.
Good to Know:
Non-resident expatriates in China must declare their worldwide income, even that not generated on Chinese territory, if their income exceeds a certain annual threshold, generally set around 48,000 CNY. Forms such as BIR60 for individuals and DET1 for entities are required, with a submission deadline often set for May 31 of the following year. Penalties for failure to file can include financial penalties amounting to 50% of the tax due. It should also be noted that individuals and companies have distinct obligations. Common complications for expatriates include forgetting to declare income generated abroad and calculation errors on double taxation. To avoid this, it’s advisable to consult a tax expert in advance and maintain precise documentation of all income sources.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
