[Explainer] Guidelines on Taxing Bonuses, Overseas Work and Expat Deductions

Q: How is tax calculated for a non-resident individual who receives a month's worth of bonuses in one month?

A non-resident individual receiving monthly bonuses calculates income for that month separately from other salaries and wages. The tax is apportioned over six months without deductions, using the monthly tax rate table. This method can be applied only once per non-resident individual in a calendar year. The formula for calculating the taxable bonus amount for the current month is as follows: (Bonus income for several months / 6) * Applicable tax rate - Quick deductions. The new regulations will take effect on January 1, 2019. Non-resident individuals who earned income after January 1, 2019, and have overpaid taxes as per previous regulations can apply for a tax refund.

Q: How should foreigners define the period of work inside and outside China for the purpose of calculating their individual income tax?

The period of work in China is calculated on the number of days an individual works, including the actual number of working days he was in China and the number of days of sabbatical leave, personal leave and training received in China or abroad during the period of work. If an individual holds a post in both a domestic and a foreign organization, or if he holds a post in a foreign organization only, the number of days of work in China is calculated as half a day if the day of his stay in China is less than 24 hours.

Q: Under what circumstances are the wages and salaries received by foreign experts exempted from individual income tax?

All foreign experts who meet one of the following conditions are exempted from individual income tax on the wages and salaries they receive:

1. Foreign experts directly assigned to work in China by the World Bank under the World Bank's special loan agreement;

2. Experts directly assigned to work in China by the United Nations;

3. Experts sent to China to work on the United Nations assistance projects;

4. Experts sent to China by donor countries to work exclusively for their non-reimbursable assistance projects;

5. Experts in culture and education who come to China to work for less than two years under the cultural exchange programs signed by the two governments and whose wages and salaries are borne by that country;

6. Cultural and educational experts who come to China to work for less than two years under the international exchange programs of Chinese universities and colleges, and whose wages and salaries are paid by the country;

7. Experts who come to work in China through private scientific research agreements and whose wages and salaries are paid by the government agencies of that country.

Q: How can foreign taxpayers determine their tax location when working in multiple locations within China?

Temporary arrivals who work or provide labor services in multiple locations must adhere to the deadlines for filing tax returns specified in the tax law, and they are required to file their tax returns at the designated location once that deadline arrives. However, they are allowed to apply, and if approved, they may be required to file tax returns in a single location. Foreign taxpayers whose wages and salaries are paid by enterprises or offices in China are required to file tax returns with the local tax authorities.

Q: How should tax returns be filed during holidays?

If the last day of the tax payment period falls on a legal holiday, the day after the holiday ends is considered the last day of the period. If there are more than three consecutive legal days of holiday, the tax period will be extended proportionally.

Q: When should an individual file for the Foreign Income Tax Credit?

According to the provisions of the Individual Income Tax Law, an individual who receives income from abroad should make a declaration and apply for the credits within the period of March 1 to June 30 of the following year. This is because a resident individual may receive multiple incomes from abroad in a single tax year, and declaring the incomes all at once after receiving them not only increases the burden of the taxpayer's declaration but also makes it difficult for the taxpayer to obtain the relevant tax records from the tax authorities abroad.

Q: What happens if my tax refund application fails after filing the yearly reconciliation return for individual income tax?

You can learn about the reasons for tax refund failure by using the Individual Income Tax app, the Natural Person Electronic Tax Services website, the competent tax authority's tax service hall, and other resources. You can reapply for a tax refund after updating the necessary details.

Q: What items are subject to individual income tax on directors' and supervisors' fees?

A) Director's fee income earned by an individual as a result of holding a directorship is of the nature of income from remuneration for personal services and is subject to individual income tax under the item of income from remuneration for personal services. It only applies to a person who is a director or supervisor of a company but does not hold any office or employment there.

B) If an individual serves or is employed by a company (including an affiliated company) and also serves as a director or supervisor, the director's fee and supervisor's fee shall be combined with the individual's salary income and shall be subject to individual income tax under the item of wages and salaries.

Q: Is the special additional deduction applicable when hiring a domestic employee to be expatriated outside of China?

Domestic employees who are expatriated to work outside China and are Chinese tax residents can enjoy special additional deductions in accordance with the regulations if they meet the conditions for special additional deductions.