Service Permanent Establishment Day Counting Rules under Chinese Double Tax Agreements
Exceeding 183 service presence days within twelve months under Chinese tax treaties creates corporate tax liability assessed on deemed profit margins.
State Taxation Administration Announcement 2019 No 35
Meaning
Regulations on non-resident individual income tax define the calculation of tax liability for foreign employees based on their duration of stay and the source of their income. Since the implementation of state taxation administration announcement 2019 no 35, the rules for determining tax residency and income sourcing have been clarified for expatriates. The regulation provides specific formulas for individuals who stay in the country for different lengths of time.
Mathematical Formula
Mathematical models for tax liability use the number of days spent in China to apportion global income. According to state taxation administration announcement 2019 no 35, the tax due is calculated by multiplying the monthly tax on the total salary by a fraction representing the days in China. This method ensures that foreign employees are only taxed on the portion of their income that is earned through their physical presence in the mainland.
The formula differs slightly depending on whether the individual holds a senior management position.
Taxpayers Eligibility
Taxpayers seeking to utilize double tax treaties must follow the simplified procedures for claiming exemptions. Under state taxation administration announcement 2019 no 35, individuals are no longer required to obtain prior approval for treaty benefits. Instead, they can claim the benefits at the time of filing as long as they maintain the supporting documents for future inspection.
This shift toward a self assessment system places more responsibility on the taxpayer to ensure their eligibility is correct.
Record Burden
Record keeping is essential for proving the number of days spent outside of China for tax reduction purposes. Foreign employees must keep their employment contracts and proof of tax payment in their home countries as part of the requirements under state taxation administration announcement 2019 no 35. Tax bureaus may audit these records up to ten years after the filing.
If an individual cannot provide sufficient evidence of their physical location, the tax bureau may recalculate their liability using a higher day count. This could lead to back taxes and interest charges on previously exempted income. Individuals who travel frequently must be especially diligent in tracking their movements to avoid these outcomes.