China Beijing Policy Regarding Individual Income Tax Policies for Overseas Income
In recent years, many local Chinese companies have responded to the call of the country’s One Belt One Road policy and vigorously develop businesses around the world. In this process, companies often send employees to work abroad and pay salaries. In addition, many resident individuals also receive fees such as author’s remuneration, franchise rights, dividends, and rent from abroad. As individual Chinese residents obtain income from abroad, how to pay the relevant individual income tax has become a problem. To this end, the State Administration of Taxation issued an announcement in early 2020, giving a detailed explanation of the policy on the collection of individual income tax on overseas income.
1. The following income shall be deemed as income derived from outside China:
(1)
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Income obtained from provision of labour services outside of China due to holding a post, being employed, performance of contracts, etc.
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(2)
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Income from author’s remunerations paid and borne by an enterprise or any other organization outside China.
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(3)
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Income obtained from granting various franchises to be used outside China.
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(4)
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Income related to production and business activities obtained from production and business activities outside China.
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(5)
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Income from interest, dividends and bonuses obtained from enterprises, other organizations and non-resident individuals outside China.
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(6)
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Income obtained from renting the property to the lessee for use outside China.
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(7)
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Income obtained from the conveyance of the real estate outside China, the transfer of stocks, equities and other equity assets (hereinafter referred to as “equity assets? formed by investments in an enterprise or other organization outside China, or the conveyance of other property outside China. However, where, at any time within the three years (36 consecutive calendar months) before the transfer of the equity assets formed by investments in an enterprise or other organization outside China, more than 50% of the fair value of the assets of the invested enterprise or other organization is directly or indirectly derived from the real estate inside China, the income obtained shall be deemed as the income derived from inside China.
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(8)
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Contingent income paid and borne by enterprises, other organizations or non-resident individuals outside China.
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(9)
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Where it is otherwise provided for by the Ministry of Finance or the State Taxation Administration, such provision shall apply.
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Compared with the "Individual Income Tax Law of the People’s Republic of China", items 1 to 3 of the above-mentioned overseas income are comprehensive income in the tax law.
2.
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Whether it is necessary to collect individual income tax in combination of the overseas taxable income and the domestic taxable income shall be determined in accordance with the following provisions:
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(1)
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The individual income tax payable on the comprehensive income obtained by the resident individual from outside China and from inside China shall be calculated on a consolidated basis.
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(2)
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The tax payable on the business income obtained by the resident individual from outside China and from inside China shall be calculated on a consolidated basis. The losses to the business income of the resident individual derived from outside China calculated in accordance with relevant provisions of the Individual Income Tax Law and the Regulation on the Implementation thereof shall not be credited against the taxable income sourced from inside China or any other country (region), but may be offset against the business income derived from the same country (region) in subsequent years in accordance with the provisions of tax laws of China.
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(3)
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Income from interest, dividends and bonuses, income from the lease of property, income from property transfer and contingent income (hereinafter referred to as “income in other categories? obtained by the resident individual from outside China shall not be combined with income derived from inside China, and the amounts of taxes payable shall be calculated separately.
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3.
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The amount of tax on income obtained by a resident individual from outside China within a tax year which have been paid outside China in accordance with the tax law of the country (region) where the income is derived is creditable against the amount of tax payable in the tax year within the limit of tax credit.
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The amounts of taxes payable by a resident individual on comprehensive income, business income and items of income in other categories derived in the same country (region) shall be the limits of tax credit thereon, which shall be calculated proportionally.
However, not all kinds of taxable income from outside China are allowed to be credited against taxable income from inside China, the income from outside China below is not allowed to be credited:
(1)
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The amount of foreign tax paid or collected by mistake;
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(2)
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The amount of foreign tax which should not be collected due to the double taxation agreement signed by our government or the double taxation agreement signed by the mainland and Hong Kong and Macau (hereinafter referred to as DTA);
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(3)
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Additional interest, overdue penalties or fines due to underpayment or late payment of overseas income tax;
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(4)
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Foreign income tax payments actually refunded or compensated from overseas taxation entities received by taxpayers who obtain income from outside China, or their interested parties;
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(5)
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The exempted amount of tax payable on income from outside China in accordance with China Individual Income Tax Law and its implementation rules.
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4.
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Where the income obtained by resident individuals from the country (region) which has signed DTA with China, shall enjoy tax exempt or reduction policies in accordance with tax laws of that country (region). And the amount of exemption or reduction shall be deemed as tax paid and may be credited against tax payable according to tax sparing clauses in the DTA. In addition, such amount of exemption or reduction may be deemed as the actual tax paid by resident individual for the income obtained from outside China and declared tax credit.
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The tax payable on comprehensive income, business income and income in other categories obtained by resident individual from one country (region) shall be its tax creditable limit, and shall be calculated pro rata.
5. Time of Declaration
(1)
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Where a resident individual obtains income from outside China, he or she shall declare income tax during period from 1 March to 30 June in the following year in which income obtained.
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(2)
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Where the foreign tax year in which a resident individual obtains income from outside China is not calendar year, the tax year of overseas income shall be the calendar year of which the last day of foreign tax year of obtaining overseas income is in.
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6. Place of Declaration
The resident individual who obtains income from outside China shall declare income tax to the competent tax authority in the place where his or her employer is located. Where there is no employer inside China, he or she shall declare to the competent tax authority in his or her domicile place or habitual residence. Where the domicile place or habitual residence are not the same, one of them shall be chosen. Where the individual has no domicile in China, he or she shall declare to the tax authority in his or her habitual residence.
7. Vouchers for Tax Credit
When a resident individual declares for tax credit for foreign income tax, unless otherwise specified, shall provide the tax certificate, tax payment certificate, or tax record issued by foreign taxation collection subject in the tax year.
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