Meaning
The administrative regulation issued by the State Administration of Taxation that governs the calculation and collection of individual income tax for non-resident taxpayers represents a major compliance standard. This bulletin is administered by local tax bureaus under the Individual Income Tax Law of the People’s Republic of China. Under this legal framework, the STA Bulletin 2019 No 35 provides specific rules for determining the tax liability of foreign employees, executives and directors who work in China on a temporary or long-term basis.
The boundary of this application is limited to non-resident individuals who reside in China for less than one hundred and eighty-three days in a tax year, or who receive income from both domestic and foreign sources. By establishing these rules, the tax authorities ensure that individual income tax is calculated and paid in accordance with the actual time spent working in the country.
Tax Calculation
The regulation defines the formula for calculating the individual income tax of non-resident individuals based on their employment income and the number of days they are physically present in China. This calculation distinguishes between income paid by a domestic entity and income paid by an overseas employer. The STA Bulletin 2019 No 35 requires employers to act as withholding agents and file monthly tax returns on behalf of their foreign employees.
If a foreign employee works for both a Chinese subsidiary and an overseas parent, the tax bureau uses a time-apportionment method to calculate the tax due on the salary paid by the overseas entity. In practice, this requires the submission of the employee’s travel records, employment contracts and salary slips to the local tax bureau.
Withholding Compliance
Employers of foreign personnel in China must maintain accurate records of their employees’ travel and working days to ensure compliance with the regulation. The local tax bureau conducts regular audits of foreign-invested enterprises to verify that the individual income tax of their foreign staff has been calculated and paid correctly. The bulletin establishes penalties for employers who fail to withhold the tax or who submit inaccurate information about their employees’ presence in the country.
This enforcement practice has been strengthened by the integration of the tax bureau’s databases with the immigration administration’s records, allowing for real-time verification of entry and exit dates. The operational limit of this compliance occurs when the individual becomes a tax resident under the 183-day rule.
Corporate Responsibility
Multinational companies operating in China must carefully manage the secondment of foreign executives and technical specialists to their local subsidiaries. This management involves structuring the employment agreements to minimize the tax exposure for both the individual and the company. The STA Bulletin 2019 No 35 provides a clear legal framework that reduces ambiguity, but it also increases the administrative burden on corporate human resource departments.
Companies must ensure that their payroll systems are configured to handle the complex calculations required by the regulation. In this highly regulated labor market, maintaining full tax compliance for foreign employees is essential for avoiding administrative penalties and reputational damage.
