Expatriate Executive: China

Summary of local taxation situation

A foreign national working in China or based there will be taxed according to their length of stay and their domiciliary status. Domicile is established as a result of habitual residence and/or family or economic involvements in China. Individuals with Chinese domicile, and those who have lived there for more than five years, pay tax on their world-wide income.

Income which is originally sourced in China is likely to be taxed there whatever the length of stay, but if income originates ultimately outside China, a stay of less than 90 days will not incur tax. For stays of between 90 days and five years, which will apply to most expatriates, only income that is remitted to or sourced in China will be taxed.

China has double tax treaties with most major trading partner countries which usually contain 'tie-breaker' clauses to deal with cases of dual residence. There is a monthly personal allowance of RMB4,800; after that, most income is taxed at progressive rates from 5% to 45%, which applies to monthly income in excess of RMB100,000.

Expatriates who can demonstrate long-term residence in China are allowed to bring in some personal chattels tax-free. Other belongings will be subject to import duties at quite high rates.

Employed individuals pay social security taxes of about 8%; the employer pays about 20%. Contributions to private pension plans, often termed 'enterprise annuities', and mostly free of tax.

There is no Alternative Minimum Tax in China, and no wealth tax. Plans have been made to impose an inheritance tax at high rates, but it is unclear whether these will be implemented.

NB: The Chinese tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is a necessity.

Offshore Investment Opportunities

As can be seen from the above, expatriates falling within the five-year window have a good deal of freedom to make investments outside China which will not be taxed as long as income and gains from them are not remitted to China.

Long-term residents will have to be more careful since they are subject to worldwide income taxation. China's new Enterprise Income Tax law has introduced a set of modern anti-avoidance paraphernalia, including CFC rules, a GAAR, transfer pricing etc. But the individual sector remains mostly free of such rules, and Chinese residents have felt free to accumulate overseas corporate and trust assets; it remains to be seen for how long these freedoms will remain in place.

Once Chinese residence has been terminated, and if non-residence is expected to be permanent, then an ex-Chinese resident is free to invest offshore in order to obtain the best possible returns.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 50 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.