Individual Tax Planning

While a foreign national (an expatriate) has his own family or based on the career factors, has to habitually or frequently reside in PRC, or be recorded as the tenant in any residential record, he is regarded as having the place of residence inside PRC.

In other words, when a permanent citizen of PRC is considered to be one who has a place of residence inside PRC, he has to bear the IIT liability subject to the income earned from the global scale.

For a permanent citizen of PRC, who bears the overseas passport or becomes the citizen of an overseas country, in considering his own individual income tax liability, he has been considered the same as an overseas expatriate.

DEFINITION OF THE FULL-YEAR RESIDENCE IN PRC

Within a calendar year, an expatriate residing in PRC greater than one year, is regarded as residing there for one whole year in PRC unless:
– The once-off departure from PRC has the duration longer than consecutive 30 days; or
– The accumulated departure days amounting to 90 or more days.

For one who has not habitually resided in PRC, but resided longer than 1 year, his income should be subject to IIT of PRC.

FOR EXPATRIATES RESIDING IN PRC LONGER THAN 5-YEAR

If an expatriate has resided in PRC longer than 5 years or above, his IIT liability is calculated based on his global income the same as a permanent citizen of PRC. As the expatriate resides in PRC persistently longer than 5 years, stepping into the 6th year, his annual GLOBAL income is taken into PRC’s IIT consideration.

According to SAT [1994] statement 148, it promulgated that senior management personnel of the FIE are entitled to the tax concessions the same as mentioned in above paragraph. In reality, some local tax bureau officials have not formally executed this rule as set out in statement 148. It is important to specifically discuss and clarify whether the entitlement to exempt the non-PRC sourced income from IIT liabilities granted to these expatriates concern, with the representatives of the local tax bureau so as to mitigate their IIT obligations in this regard.

IIT OBLIGATIONS TO EXPATRIATES OF R.O.

The chief representative (“CR”) of any representative office is not entitled to 90-day rule for non-PRC sourced income.

IIT OBLIGATIONS TO EXPATRIATES HIRED BY PE OF FIES

FIEs are liable to the CIT (corporate income tax) as they are regarded as having PE in PRC. If the salaries paid by the FIEs in PRC, no matter the length of their stay in PRC, the salaries payable to those expatriates are still liable to IIT obligations. 

For the expatriates, being the senior management or director of a local Chinese enterprise, are not entitled to the protection under the 90-day rule or 183-day rule, their salaries sourced in PRC are subject to IIT obligations, unless the salaries are not sourced in PRC during the working period in PRC.

The tax benefits attributable to 90-day rules are applicable to the expatriates who have the “temporary visit to China” under the following conditions:
– the income sourced outside PRC;
– the paying entities is not the PRC entity.

The senior management is defined as:
– the general manager;
– the deputy general manager;
– the chief officers of other departments;
– chief supervisor; and other positions similar to the company’s management.

We can provide the tax planning services to the expatriate personnel (including directors and senior management) to reduce their IIT liabilities in PRC.

1.41 TAXABLE INCOME: 

The following items are the examples of taxable income / benefits for foreign nationals working in PRC (“expatriates”):

1. Wages and basic salaries;
2. Other benefits and gains in connection with the employment;
3. Cost of living and vehicle allowances;
4. Tax reimbursements;
5. Any compensations for services rendered;
6. Stock awards and stock options;
7. Bonus and cash allowances;
8. Occasional gains;
9. Any gains from the transfer of property;
10. Subsidy; and
11. Severance payments.

 

1.42 STANDARD DEDUCTIONS:

1. RMB4,800 for expatriates at monthly basis;
2. RMB2,000  for local PRC resident at monthly basis; and
3. Approved charitable donation.

1.43 INDIVIDUAL INCOME TAX RATES AND CALCULATION FORMULA:

Monthly Taxable Income after standard deduction (RMB)	Tax Rate (%)	Quick Reckoning Amount (RMB)
0-500	5	0
501-2,000	10	25
2,001-5,000	15	125
5,001-20,000	20	375
20,001-40,000	25	1,375
40,001-60,000	30	3,375
60,001-80,000	35	6,375
80,001-100,000	40	10,375
Over 100,000	45	15,375

Tax payable = Taxable Income X Applicable Tax Rate Less Quick Reckoning Amount

1.44 IIT TAX PLANNING SERVICES RENDERED TO EXPATRIATES WORKING IN PRC

We can provide the tailor-made IIT tax planning services to such expatriates at the day one before they will start to work in PRC. Please contact us.