Tax issue Part III: individual income tax policies

Here is a guide to make clear the process of how Shanghai's tax payments are collected and what is special for the expat community in tax payments.

The guide is divided into three parts and the following is the third part.

Q: Under what circumstances will a foreign individual be recognized as a resident individual?

A: An individual who has a domicile in China or has no domicile but has resided in China for a cumulative period of 183 days within a tax year is a resident individual.

Q: Can foreigners who are tax residents enjoy the tax-free treatments, including housing subsidies, language training and children's education fees, along with special additional deductions?

A: 1. During the period from January 1, 2019 to December 31, 2023, foreign individuals who are Chinese tax residents may choose to enjoy the special additional deduction of individual income tax, or the tax-free treatment of housing subsidies, language training and children's education fees, but cannot enjoy them at the same time. Once selected, it's not allowed to change within the tax year.

2. From January 1, 2024, foreign individuals will no longer enjoy the tax-free treatment of housing subsidies, language training and children's education fees, but can enjoy special additional deductions according to the law.

Q: How can foreign individuals enjoy the exemption from individual income tax after obtaining relevant subsidies?

A: Foreign individuals who obtain the above subsidies must provide relevant vouchers and supporting materials in accordance with the provisions of Guo Shui Fa 国税发 [1997] No. 54 when declaring or withholding individual income tax.

Q: How do foreign individuals pay individual income tax if they have resided in the People's Republic of China for a cumulative period of 183 days in a year?

A: Individuals who have a domicile or haven't a domicile but have resided in the PRC for a cumulative period of 183 days in a tax year, are Chinese tax residents.

Individual income tax should be paid in accordance with law on income derived by the tax residents from within and outside the territory of the PRC. Individuals who have no domicile in the PRC but have resided for a cumulative period of 183 days and less than six consecutive years will be exempted from individual income tax on income derived from sources outside the PRC and paid by units or individuals outside the PRC after filing with the competent tax authorities.

In the case of a leave of more than 30 days within a tax year in which the person has resided in the PRC for a cumulative period of 183 days, the consecutive years shall be recalculated.

Q: What should be done if a pre-determined tax resident without a domicile no longer meets the threshold conditions due to the shortened residence days?

A: If an individual without a domicile was determined in advance as a non-resident individual and then meets the threshold conditions due to the extension of residence days, the tax withholding method for him/her shall remain unchanged within a tax year, and the final settlement shall be handled in accordance with the relevant provisions of Chinese tax residents after the end of the year.

However, if the individual leaves the country in the current year and is not expected to reenter within the same year, the final settlement of the Individual Income Tax could be made before leaving the country.