IIT (Individual Income Tax) Planning for Expatriates in China
What law governs the taxation of income of ex-pats living in China? How is the IIT of ex-pats reported in Shanghai?
“How do I determine my IIT so that I don’t have to pay a recurring levy by my country?
These types of questions are often frequently asked by my clients. Legal tax avoidance is a constant current subject.
The individual income tax rate [IIT], between 5% and 45 percent, is at the top tier in the entire world. Because of the cost and the complicated tax regulations, you have the opportunity and demand to pay your individual income tax in a lawful and correct manner. A well-planned and proactive tax strategy can be beneficial!
Do I have to pay an individual tax on income?
Identification determines your tax liabilities. It’s not always the highest earners that have the highest marginal rate of income tax. There are different tax laws as well as exemptions, rates, and rates for different types of people. Even for people who are in China for the same reason, which is the identical visa, Different tax rules could result due to the different types of certificates they possess.
Example of Practice: A man was hired by a Chinese University as an English Teacher. The person could be granted an Expert License (Culture & Education) and can apply for a residence permit and working visa. In contrast to those who were hired by a company, such as WFOE JV, WFOE, or RO, even though they share the same motive to WORK here and have the same “Z” visa, the second one isn’t with a tax exemption for the oversea income because of the absence of an ‘Expert License.’
Can I reduce taxes by limiting the number of days of my time in China?
Reasonable control of resident days aid in avoiding substantial tax burdens. Under the China Tax Treaty, different exemptions apply to different cumulative days of being in the PRC within the calendar year. A fraction of less than 90/183 days and more than 90/183 but not exceeding one year, or even one year up to five years, are eligible for tax benefits, respectively.
Tips for technical experts: Avoid being taxed on income from all over the world by breaking the five-year cycle. The decision to leave China for 31 consecutive days or 91 consecutive days by the 5th year can help. Additionally, the option of leaving China for 31 consecutive days or 91 days cumulatively during the 6th year will help reset the five-year clock.
What kinds of incomes are tax-deductible?
Adjust the structure of your income in order to make use of all categories that are exempt from taxation. The expenses that are temporarily exempted include food allowances, allowances for the house and removal compensation as well as laundry allowance by foreigners in cash form or as reimbursement or reimbursement, the visit allowance for relatives and language training allowance, children’s education allowance as well as the dividends and bonus earned from FIEs.
Technical advice: Avoid obtaining cash to cover your expenses for living. The reimbursements based on actual figures allow you to maximize your exempted expenses. In the event of living expenses, receiving the cash will result in an expense to you when compared with providing the actual invoices to the employer and receiving your net figure.
International Tax Planning with Tax Protection & Equalization Policies.
Due to the different worldwide tax rates, to ensure that the assignment will be “tax neutral,” many businesses pay taxes that are higher than the hypothetical tax liability of the expatriate. They also employ tax equalization policies to ensure that employees who work abroad are treated equally and in a consistent manner all over the world.
An example of practice: a UK expatriate working in China is treated in the same way as working in the town he grew up in and in the US; however, the tax laws of these two countries are very different. After deducting his hypotaxis overseas and tax, the individual is entitled to lesser tax benefits, or the employer covers an additional cost for his time in China.