Did you Know?: Salaries paid in Singapore can also be taxable in China!
China government amended the Individual Income Tax (IIT) Law which took effect from 1 January 2019.
A major set of new IIT rules affecting foreigners were issued in mid-March which significantly changed the definitions under the China tax law for foreigners. Additionally, big data is now an effective tool for tax administration in China.
How will the new law affect expatriates working in China from a Singapore context? What are the common problems relating to secondment of staff to China?
In this highly practical workshop, the trainer will explain the important issues arising from China’s new IIT law and will demonstrate best practice approaches in overcoming these HR challenges, through the use of practical examples.
Issue 1: Who is Liable?
Before 2019, the Chinese employer is the withholding agent for IIT, including the IIT on salaries paid outside China. Hence, the China tax bureau could penalise the Chinese company. From 2019 onwards, the Chinese company is responsible to withhold the IIT on salaries paid in China while the individuals (including foreigners) should pay their own tax. The tax bureau can penalise the individuals for non-compliance.
- What are the consequences of non-compliance?
- How can the big data help to share the information between the China immigration and tax authorities?
Issue 2: Taxability on Offshore Salaries
China changed the definition of “day of residence”. The day of transit counts as zero and a whole day of 24-hour counts as one day. A foreigner without China domicile residing in China for no more than 90 days may be exempt from China IIT while under tax treaty, the tax exemption threshold is 183 days of presence.
Salaries paid outside China should be combined to calculate IIT if the foreigner cannot be exempt from IIT. There are formula 1, formula 2 and formula 3 for foreigners with onshore and offshore salaries. Both salaries should be combined and applied the new time apportionment method, which is totally different from the past.
- Why dual contracts cannot work?
- A foreigner (including Hong Kong, Macau and Taiwan for tax purposes) travels to China to work every day and return to Hong Kong with all salaries paid outside China can be exempt from China IIT
- A foreigner travels to China on Monday and leave on Wednesday every week with all salaries paid outside China can be exempt from China IIT
- A foreigner travels to China on Monday and leave on Friday every week with all salaries paid outside China has to pay China IIT by using formula 2 and is not a China tax resident
- A foreigner gets part of the salaries paid in China and part of the salaries paid outside China and travels to China on Monday and leaves on Wednesday should use formula 1 to calculate
- What are the formulae?
- What are the critical points of “days of residence” which affect the tax calculation?
- Who is liable to report the offshore salary? The employer or the employee?
Issue 3: Worldwide Tax and Tax Break
According to Article 1 of the Law, an individual without China domicile spending 183 days in a calendar year becomes a China tax resident and will be subject to China IIT on worldwide income. Tax break is still possible for foreigners to avoid worldwide tax.
- The counting of days of residence has changed – only a 24-hour day in China is counted as “one day” – how will this affect foreigners working in China?
- Why a Singaporean who travels to China every Monday and returns to Singapore on Friday is not a China tax resident?
- What is meant by “domicile”?
- Will a Singaporean with an apartment in China be considered as having China domicile?
- How to arrange for tax break from 2019 onwards?
- Why the deadline for the first tax break is 2024 for all the foreigners in China?
- How to reset the counting of years of tax residence? How about the treatment of 2018 and before?
- If a foreigner has dual tax residency (e.g. US and China) and each country of tax residence imposes worldwide tax, how should this be resolved?
- While offshore income can be tax exempt, should this be reported to the China tax authority?
Issue 4: Permanent Establishment
Singapore Co has a few engineers who frequently travels to China to support the Chinese subsidiary. All salaries are paid in Singapore. The number of days of residence / presence exceeds the tax exemption threshold.
- How can the Singaporean engineers pay IIT in China?
- Why the Singapore Co may be challenged by the China tax authorities on having a Chinese permanent establishment? If so, what will be the consequences?
- Why the risk of PE challenge was low in the past but much higher now?
- How to restructure so as to reduce the PE risk?
Issue 5: Tax Exempt Allowances
Six specific additional deductions are introduced for all individuals, namely: children education, continued education, major illness medical expenses, mortgage interest, rental expenses and support of the elderly. Expatriates can opt to use the old method and enjoy the eight tax exempted allowances. Foreigners can opt the previous eight tax exempt allowances during the three-year transitional period.
- Which one can reduce the tax burden?
- How will this affect the employment contracts of expatriates which state that invoices (FaPiaos) should be provided to HR in order to get tax exemption?
- Which types of allowances are taxable under the new IIT Law?
Issue 6: Secondment
- Singapore headquarters seconded a few staff to the Chinese subsidiary. Why the secondment is considered as “service” and hence, subject to VAT and Enterprise Income Tax of China?
- Singapore Co paid the salaries in Singapore and charged back to Chinese subsidiary. What are the documents required so as to remit the recharged salaries to overseas?
- Which type of secondment charges cannot be remitted?
Issue 7: Tax Withholding and Annual Filing
- The new IIT Law introduces the mechanism of a combination of provisional withholding by employer and annual filing (with tax refund, if any)
- The monthly provision withholding is on the “cumulative basis”, what is the difference between the previous monthly IIT calculation?
- Under the “cumulative basis”, the IIT withheld is lower in January and higher in December. Why?
- What are the implications on tax equalization policy?
- What are the responsibilities of employers?
- What are the responsibilities of employees?
- If one is considered as a tax resident and finally becomes a non-resident, what should be done?
- If one is considered as a non-resident and finally becomes a tax resident, what should be done?
Issue 8: Salaries vs Service fee
- IIT for service fee is 20% lower than IIT for salaries
- What are the differences between service fee and salaries from tax and social security perspectives?
- Is it possible to restructure and turn the general manager into a consultant?
Issue 9: Tax Exemption under Treaty
- Will the new IIT Law affect the exemption under tax treaty?
- How can foreigners working in China enjoy the exemption under tax treaty?
- What are the procedures to apply for treaty exemption?
Issue 10: Anti-avoidance
- The new IIT Law introduces anti-avoidance article. How will it affect foreigners working in China?
- A foreigner invested in China via a Singapore holding company. Will the “look through” concept apply for the sale of SingCo shares by the foreigner and hence, be subject to 20% China IIT?
Issue 11: Annual bonus
Tax resident can opt to use the special method to calculate annual bonus during the three-year transitional period. Non-resident has a different time-apportion method to calculate the IIT on bonus?
- How to calculate the IIT for different types of people?
- How to structure in order to reduce the IIT?
- Who should opt the old method?
- What is the optimum amount of bonus which can reduce tax?
Issue 12: Other Issues
- Employees received stock option of the overseas listed company. What are the tax and non-tax issues which should be considered? After paying IIT, can the amount charged-back to Chinese subsidiary be remitted overseas?
- The Singapore employee is going to retire and wants to sell the apartment in China. Can the proceeds be remitted overseas?
- How to structure a tax effective package when sending someone to work in China?