If you are a foreigner who has been living in China since January 1, 2019, it may be the right time to consider leaving the country each year. The new rule on tax residency gives tax privileges for foreigners who have stayed in China for less than 183 days in a tax year.
Read our previous post about China Announces Preferential Visa Policies for Foreigners
Aside from tax exemptions based on residency, foreigners also continue to enjoy other tax-related benefits. Read and take advantage of China’s special policies for foreigners.
The new six-year rule for foreigners
Under the newly implemented IIT regulations, a non-domiciled, resident individual is subjected to tax on worldwide income if he or she stays in China for 183 days or more each tax year for six consecutive years. That is to say that a foreigner must pay taxes on income not paid by a Chinese domestic entity or a resident individual.
However, the new six-year rule also stipulates that a foreigner does not need to pay taxes on overseas income if he or she meets the following conditions:
- Less than 183 days of stay in China (considered as one tax year)
- Single departure from China for over 30 days straight at any point in time during the six years
If a foreigner is non-domiciled and resides in China for less than 183 days in a tax year but more than 90 days, he or she is considered a non-resident taxpayer. This also means that he or she will only pay for a China-based income source.
Foreigners cannot be domiciled unless they reside in China due to household registration, family ties, and economic involvement. They are non-domiciled since they reside in China for short-term purposes such as study, work, family visit, and tourism. Hence, foreigners cannot be domiciled due to visa constraints.
In practice, all PRC nationals are treated as tax residents in China unless they immigrate.
Also, check out relevant information on How to Get a Permanent Residence Permit in China
