New six-year tax residency rule
As clarified by the State Taxation Administration, the starting point to determine the tax status of a foreign worker will be in accordance with the “six-year rule”. If a foreign worker resides in China for six consecutive (successive) years without leaving China, he or she will be subject to taxation on their income from anywhere in the world. Previously, the rule applied for only five years of stay. Now, it is extended to six years which means foreigners will have another year not to pay tax on their overseas income, given that they have a single departure for 30 days.
All years spent in China before January 1, 2019, will not be included in the calculation. In other words, since the implementation of the new regulation, the six-year count has been restarted, only those who will have stayed in China for six consecutive years by 2024 tax filing season will be subject to income tax on all income sources.
Unlike the previous rule, this time, taxpayers may be able to automatically enjoy the tax benefits at the point of filing (i.e., no longer need the approval from local tax authorities).
Restarting the “clock”
Does “six consecutive years” literally mean you can leave China for a day and restart the six-year rule? NO.
- 30 days – if there is a single departure outside of mainland China consisting of more than 30 uninterrupted (literally) days, the clock to six years CAN be restarted
- 183 days – consider the six years as six 183-day-years. Since the start of 2019, a foreign worker is considered to have spent “a year” in China if the individual stays in China for at least 183 days within a given year (January 1 to December 31)
- 24 hours – only full 24-hour- days are counted here. If a person is in Hong Kong from 8 am on Monday and goes to Shanghai at 5 pm on Friday in a given week, then only Tuesday, Wednesday, and Thursday (only 3 days) will be counted.
1. Suppose an individual, L, a Hong Kong resident who works in Shanghai, comes to Shanghai every Monday morning and returns to Hong Kong on Friday evening. Monday and Friday are less than 24 hours within mainland China, so these are not counted in the number of days, and therefore, L stays in China for a total of 3 days each week. If computed annually:
52 weeks in a year * 3 days a week = 156 days; Therefore, L does not count as a tax resident in China. Only his income from within China will be counted for income tax purposes (in mainland China).
2. For example, M, a foreign worker, came to Shanghai to work from January 1, 2013, until August 30, 2026. For the most part, M stayed in mainland China and only went on vacation outside the country from February 1 to March 15, 2024.
As mentioned above all prior years from January 1, 2019, are not counted in the six-year rule. Therefore, based on the six-year rule, M has lived in China from 2019 to 2024. However, his income from outside China will still not be included and the six-year clock will have been restarted because he left mainland China for more than 30 uninterrupted days. Therefore, M would have to count another uninterrupted six-year before his worldwide income can be subject to personal income taxation in mainland China.