Last week one of my clients sent an email asking for legal advice regarding his individual income tax and to confirm whether he is entitled to any tax refunds as he is going to leave after ten years of working in China.
The first question we need to answer is how to define a foreign employee’s individual income tax obligations. There are general provisions in the Individual Income Tax Law of China: Any individual who has a domicile within the territory of China or who has no domicile but has stayed in the territory of China for one year or longer shall pay individual income tax for any income obtained in and outside the territory of China. Any individual who has no domicile and does not stay within the territory of China or who has no domicile but has stayed within the territory of China for less than one year shall pay individual income tax for any income obtained within the territory of China. This means that whether a foreign employee should pay income tax in China depends on three factors:
- Where they obtain the income, in China or out of China?
- How long have they stayed in China?
- Who paid them the income?
As to this client, he has lived and worked in China for ten years. We can generally confirm that he must pay income tax for his income both in and out of China. That is to say, he needs to pay income tax for his salary from his employer in China but also any income from out of China, for example if he has an apartment out of China rented out, and he must also pay income tax for the rent he received from the apartment.
I don’t have any more details about this client’s case now. Things may get much more complicated in practice since the three factors will be different from case to case and there are much more detailed provisions in relevant laws. So my suggestion is my client is a good example. Just go to find a lawyer for professional advice regarding your tax issues.
Regarding to the other question of my client, actually, there are no tax refunds regarding individual income tax in China. There is tax preference regarding the individual income tax of foreigners; since it is also sort of complicated, I’d like to talk about it in my next blog, so stay tuned!
Myra Kong, Attorney at law