What kind of foreign individuals shall pay Individual Income Tax (IIT) in China? (Definition of Foreign Individuals)
Foreigners and residents of the regions of Hong Kong, Macau and Taiwan (hereinafter referred to as “Foreign Individuals”) who derive income from work or employment with enterprises or organisations within the territory of China
Foreign individuals who derive income from personal services provided (including design work, shows, performances, advisory positions, brokerage services, agency services, etc.)
Foreign individuals who derive income from author’s remuneration, royalties, interest, dividends, bonuses, the lease of property, transfer of property, contingent income and income from other sources inside China
Would the wages and salaries paid by enterprises or individuals outside the PRC be regarded as income derived inside China? (Determination of individual income sources)
For the wages and salaries derived by the foreign individuals, the place where he/she works is considered the source of income. The location of payment is not relevant in determining the income source.
In other words, wages and salaries derived by the foreign individual for work while inside China will be considered as China-based income, regardless of whether they are paid by enterprises or individuals inside or outside China. Wages and salaries derived by the foreign individual for work while outside China will be considered as income based outside China, regardless of whether they are paid by enterprises or individuals inside or outside China.
How does one determine tax liabilities for foreign individuals?
Non-resident individuals who do not live in China but receive income from China, and those non-residents who live in China for less than one year, must pay individual income tax on income derived from sources within China.
Non-resident taxpayers working in China for less than 90 days or those from tax-treaty countries residing in China for less than 183 days shall pay individual income tax on income paid by their employers within China or on income not paid but incurred by foreign establishments located within China.
A non-resident taxpayer residing in China for more than 90 days (183 days for those from tax-treaty countries) but less than one year shall pay his individual income tax on all the income paid by his employers both inside and outside of China during his service in China.
Resident taxpayers are individuals who have domicile in China, or those without domicile but who have resided in China for one year or more. They shall pay their individual income tax on their income derived from sources both inside and outside of China.
In practice, their tax liabilities may be different depending on the locations where their income is paid. For example, a resident taxpayer residing in China for one year or more but less than five years shall pay his individual income tax on both income derived from sources within China and income derived from sources outside of China but paid by corporations, enterprises and other economic organizations or individuals within China. He is exempted from individual income tax on income derived from sources outside of China and paid by corporations outside of China when so granted by tax authorities.
A resident taxpayer residing in China for more than five years, like other domestic resident taxpayers, shall pay his individual income tax on income derived from sources both inside and outside of China.