Meaning
Administrative rules issued by the State Taxation Administration provide the legal framework against which the residency status and tax obligations of foreign employees working in China are determined. Tax authorities implemented bulletin 2019 no 35 to simplify the calculation of individual income tax for non resident individuals and to align domestic practice with the latest changes in the tax law. The regulation clarifies how to count the number of days spent in China for tax purposes and how to apportion income earned from both domestic and foreign sources.
It provides a standardized formula for calculating the tax liability based on the length of stay and the position held by the employee. The rules apply to all non resident individuals who receive income from a Chinese entity or perform services within the country. The boundary of the bulletin is set by the specific residency thresholds defined in the individual income tax law.
Residency Determination
Counting the exact number of days an individual spends in the country is the foundation for applying the rules. Bulletin 2019 no 35 states that any part of a day spent in China counts as a full day for the purpose of the one hundred and eighty three day residency test. However, for the purpose of calculating the taxable income for a specific month, only full days are counted.
This distinction is important for employees who travel frequently between a Chinese factory and their home country. An individual who stays in China for less than ninety days in a year may be exempt from tax on income paid by a foreign employer, provided there is no permanent establishment in China. If the stay exceeds this limit, the individual becomes liable for tax on income related to the days spent working in the country.
Income Apportionment
Dividing the total salary between Chinese and foreign sources is a requirement for employees with regional roles. Bulletin 2019 no 35 provides specific formulas for individuals who serve as senior managers or directors of a Chinese enterprise. These individuals are taxed on their entire income regardless of where the work is performed, unless they can prove that the income is not related to their Chinese position.
For other employees, the taxable income is limited to the portion of the salary that corresponds to the number of days spent working in China. The calculation also takes into account whether the salary is paid by the local Chinese entity or by the foreign headquarters. This ensures that the tax burden is proportional to the economic activity performed within the jurisdiction.
Filing Procedure
Taxpayers and their employers must follow a set of reporting requirements to ensure compliance with the new rules. The bulletin 2019 no 35 requires the domestic employer to act as a withholding agent and to report the residency status of its foreign employees to the local tax bureau. The employer must collect documentation such as passport stamps and travel records to verify the day count.
If a tax treaty applies, the individual may be eligible for a lower tax rate or an exemption, but this requires a separate filing with the tax authorities. The tax bureau uses the information provided in the annual filing to check if the correct amount of tax was withheld throughout the year. Failure to accurately report the days spent in the country can lead to penalties for both the employee and the employer.
The rules remain in force for all non resident taxpayers until a new administrative order is issued by the state.
