FAQs on individual income tax

Issuance Date: January 14, 2019 Source: govt.chinadaily.com.cn 

Which foreign experts’ wages and salaries are exempt from individual income tax? 

1) Foreign experts sent directly to China by the World Bank according to the World Bank special loan agreement; 

2) Experts directly sent by the United Nations organizations to work in China; 

3) Experts working in China for United Nations assistance programs: 

4) Experts sent by a donor country to China to work specifically on grant programs; 

5) Cultural and educational experts who work in China for less than two years under cultural exchange programs signed by the two governments and receive wages or salaries from their countries;

6) Cultural and educational experts who work in China for less than two years under the international exchange program of Chinese universities and colleges and receive wages or salaries from their countries; 

7) Experts who work in China through non-governmental scientific research agreements and receive wages and salaries from their countries’ governmental agencies. 

What are the specific provisions on paying individual income tax for foreign individuals in senior management positions in China? 

Foreign individuals who occupy senior management positions in China are those who hold positions as chiefs and deputy managers, chief executives, directors and other types of management positions in Chinese enterprises.

Foreign individuals who hold directorships or senior management positions in Chinese domestic enterprises and get director’s fees and salaries from those enterprises must declare and pay personal income tax from the date of taking office till leaving office, whether they perform their duties in China or not. 

Foreign individuals who hold director positions and gets director’s fees must pay personal income tax on the basis of remuneration for personal services. Wages for management positions unrelated to their director positions shall attract personal income tax based on salaries and wages. Foreign enterprises’ directors who hold direct managerial positions or who nominally do not hold direct managerial positions in enterprises, but are actually engaged in daily management work shall add up their director’s fees, supervisor’s fees and personal salary and pay personal income tax on the income from wages and salaries. 

Individuals from Hong Kong, Macao and Taiwan who take senior managerial positions in Chinese mainland’s enterprises shall pay personal income tax in accordance with the above provisions. 

What are the specific provisions on personal income tax for foreign individuals working in representative offices in China? 

Where a representative office in China uses the method of approved profits to calculate and pay enterprise income tax or does not pay enterprise income tax for no business income, the wages and salaries actually obtained by the employees while working within the territory of China, whether recorded in the accounting books of the institution, shall be deemed to be paid or borne by the representative office of the foreign enterprise in China. 

The salary income of foreign news agency reporters in China shall be levied in accordance with the provisions of the personal income tax law of China. In accordance with the principle of reciprocity, if a foreign reporter’s country stipulates that the personal income tax of our correspondents shall be exempted, we shall also exempt the foreign reporter’s personal income tax, while it must be handled through diplomatic channels。 

What are the specific provisions on personal income tax for actors and sportsmen from foreign countries and Hong Kong, Macao and Taiwan?

1) Actors and sportsmen from foreign countries and Hong Kong, Macao and Taiwan engaging in performances in the name of groups, 1) if the actors or sportsmen are employed on a temporary basis, they shall be levied personal income tax based on remuneration for personal services after deduction of specified fees; 2) if the actors or sportsmen are employees of the performing group, they shall be levied personal income tax based on wages and salaries after specified fees deduction. 

2) Actors and sportsmen from foreign countries and Hong Kong, Macao and Taiwan engaging in performances in their own names shall be levied personal income tax based on remuneration for personal services. 

3) Actors and sportsmen should declare and pay personal income tax in tax authorities in the place where their performance is staged. In the case of income from remuneration for personal services, if an actor or sportsmanperforms in one place more than once, the individual income tax shall be calculated on the basis of the total income obtained from the performances.

How to pay personal income tax for employees getting material objects from foreign-invested enterprises and foreign enterprises? 

If foreign-invested enterprises or foreign enterprises purchase houses or cars for their employees and confer full ownership to the employees based on agreed terms that the employees should work for a certain number of years in the enterprises or meet other conditions, the material objects shall be levied personal income tax in accordance with wages and salaries, based on the price indicated on the relevant documents or the price approved by the competent tax authority. 

Since the value of material objects are relatively high and the ownership is gradually attained with the working years, the total sum shall be divided by the number of months of the stipulated working time (at most five years, and those more than five years shall be calculated on a five-year basis) and then add to the individual’s average monthly salary. 

The expenditure of purchasing or renting cars for individuals paid by enterprises shall be levied tax based on the individual’s salary; if the individual can provide lease contract, the tax can be calculated on the basis of the income from lease of property. 

How do foreign employees pay personal income tax for housing expenses in China? 

If the foreign-invested enterprises and foreign representative offices in China rent or purchase houses for foreign employees living for free, the expenses can be exempted from personal income tax. 

Housing fees given to foreign employees by foreign-invested enterprises and foreign representative offices can be listed as expenditure and included in the foreign employees’ If the employee can provide accurate proof of housing expenses, the actual expenditure can be deducted from the taxable income.