CHINA Law and Practice Contributed by: Mei Zhang, DaHui Lawyers
must be consolidated with domestic income for annu - al tax reconciliation. A foreign tax credit is available to mitigate double taxation. If a Chinese entity bears the costs of salaries or remu - neration of such dispatched employees, or is associ - ated with an overseas institution, it may be deemed the withholding agent in China. In such cases, the Chinese entity may be required to withhold IIT month - ly for the total amount of the dispatched employees’ domestic and overseas compensation, rather than having the individual pay taxes on their overseas income during the annual tax reconciliation. Cross-Border Employment When Chinese companies hire foreign employees, they need to accurately determine the employees’ tax residency status. If a foreign national meets the criteria for a resident individual and has a domicile in China, then all their income derived from both within and outside China (ie, global income) is subject to IIT. However, if they do not have a domicile in China, as long as the consecu - tive years in which they have resided in China for a cumulative total of 183 days are less than six years, their income derived from outside China and paid by overseas entities can enjoy tax exemption after filing with the competent tax authority. If, during the afore - mentioned six-year period, they are absent from China for more than 30 days in any given year, the year in which they have resided for a cumulative total of 183 days in China will be interrupted and the calculation will restart. Foreign nationals who reside in China for 183 days or more per year over six consecutive years will assume the same tax liability as that of a resident individual based on the domicile criterion. In conclu - sion, all income that is generated from within or out - side China is subject to taxation in China. Foreign nationals who are non-domiciled individuals are only required to pay IIT on income derived from within China. If a foreign national resides in China for no more than 90 days in a calendar year, their China- sourced income paid by an overseas employer with no establishment or place of business in China is exempt from tax. However, it is important to note that this provision only applies to wages and salaries. The
90-day period is more like a tax threshold than a full tax exemption; if the foreign national stays in China for longer than 90 days, their China-sourced income is subject to full taxation, and any previous income treated as exempt within that same year must be ret - rospectively declared and taxed. Remote Work China’s domestic tax law currently has no specific provisions addressing the novel tax nexus issues posed by remote work arrangements. The tax treat - ment is generally assessed based on a number of fac - tors, including tax residency status, place of service Chinese tax law specifies certain types of miscellane - ous income that are not prominently featured in the OECD Model Tax Convention. Other Income not Listed Above Under the PRC IIT Law provision, and DTAs. 3.6 Other Income • Author’s remuneration: The OECD Model Con - vention does not establish a separate “author’s remuneration” category for individuals. The PRC IIT Law lists an author’s remuneration as a sub-item of “comprehensive income”, and specifically refers to income made from the publication or dissemina - tion of works like books, newspapers, etc. This is subject to progressive tax rates ranging from 3% to 45%. • Incidental income: The OECD Model Convention does not list “incidental income” separately; related income is usually included in the “other income” catch-all clause. PRC IIT Law categorises inciden - tal income separately. Accordingly, personal prizes, winnings, lotteries, random lottery prizes, and unexpected gifts are subject to a 20% proportional tax rate on a per-transaction basis. Other Income not Listed Above Under the PRC CIT Law • Income from donations received: While the OECD Model Convention does not specifically list “income from donations received”, the Implemen - tation Rules of the PRC CIT Law explicitly classify “income from donations received” as a sub-item of “other income”. Monetary and non-monetary
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