Managing Cross Border Staffing and Permanent Establishment Risks
Cross border staffing into China without local entity structuring exposes foreign parents to deemed profit enterprise income tax and labor law penalties.
STA Circular 2019 No 35
Meaning
Tax administration regulations in the People’s Republic of China establish specific frameworks for calculating individual income tax for non-resident taxpayers. The State Taxation Administration issued the sta circular 2019 no 35 to provide clear guidelines on the treatment of non-resident individuals and resident individuals who do not have a domicile in the country. This regulatory document defines how to calculate the tax liability of foreign employees based on the days they spend in China and the source of their income, streamlining the payroll process for multinational corporations.
Residency Status
The document distinguishes between domiciled and non-domiciled individuals to determine tax obligations. It establishes a formula to calculate the tax liability by considering both the domestic and overseas working days of the individual. This approach ensures that tax is levied proportionally on income derived from work actually performed within the territory.
Tax Calculation
A detailed formula is provided to calculate the monthly or annual tax due from non-residents. The calculation excludes salary paid for days worked outside the country.
Compliance Requirement
Employers must maintain detailed documentation of their foreign employees’ travel history and work location. This includes flight tickets, entry-exit stamps and copy of contracts to substantiate the tax calculations during audits. The implementation of these rules has led to standardized payroll processes across multinational companies operating in China.