PRC IIT for Expatriates and Cross-Border Business Travellers 18 th March 2010 Presented by Kathy Siu...
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Transcript of PRC IIT for Expatriates and Cross-Border Business Travellers 18 th March 2010 Presented by Kathy Siu...
PRC IITfor Expatriates and
Cross-Border Business Travellers
18th March 2010
Presented byKathy Siu – [email protected]
Refresher on PRC IIT
Domiciled
Yes
Expatriates
IIT on WW Income Residence Status+
Source
No
PRC National
1
Domicile test
Taxpayer’s personal connection within China
- Usually or habitually resides in China due to:-
• household registration
• family ties
• economic relationship
(IITIR, Art
2)
2
IIT Liability for Expatriates
Residence Status
> 5 full years Worldwide Income
Source of Income
> 1 year < 5 years
PRC sourced income + Non-PRC sourced
income borne by PRC entities
PRC sourced income
PRC sourced income that is
paid or borne by
an establishment in China
> 90 / 183days < 1 years
< 90 / 183days
4
IIT Exemption for Expatriates
+< 90 / 183 days
Remuneration costs not borne by a PRC entity or deemed to have been borne by an establishment in China
E.g. Permanent Establishment
Representative Office
5
IIT Exemption for Expatriates (Con’t)
1. Chief Representative of a Representative Office (“RO”)
- his costs are deemed to be borne by the RO and
therefore subject to IIT
Exceptions
2. Expatriates working on a project that is deemed as a PE in China
3. Expatriates employed by a China entity
6
Days Counting Rules
1. For counting 90 / 183 days purpose (include working and non-
working days)
Entry day – 1 day
Exit day – 1 day
Entry + exit same day – 1 day
7
Days Counting Rules (Con’t)
2. Counting actual working period for IIT calculation purpose
(working days only)
Entry day – 1/2 day
Exit day – 1/2 day
Entry + exit same day – 1/2 day
8
Example : John Smith, a Hong Kong resident, spent the following number of days in China in 2008 and 2009.
His working days are noted in blue colour
For counting 90/183 days purposes : 191 days (twelve months from 1.Oct.2008 to 30.Sep.2009)
For counting actual working period for IIT calculation purposes : 2008 – 37 days
2009 – 138.5 days
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1½
43
65
1½
2018
2010
Days Counting Rules (Con’t)
2008 :
2009 :
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
108½
2019
2016½
109
2015
2015½
109
2018
2019
109
191 days (i.e. >183 days)
9
Days Counting Rules (Con’t)
3. One full year
If lived in China for 365 days in a calendar year
- Ignoring temporary absence from China:-
• Single trip of 30 days or less
• Multiple trips totalling 90 days or less
10
Days Counting Rules (Con’t)
4. Five full years
If lived in China for 5 full years consecutively, and each year’s temporary absence :-
• 30 days or less for single trip
• 90 days or less for multiple trips, in total
Subject to IIT on Worldwide Income from the 6th year if continue to
live in China
11
To break 5-year rule
Make one single trip > 30 days (excluding exit and entry days)
or
Multiple trips > 90 days (excluding exit and entry days)
In the 5th year
or
prior
In the 6th year Stay in China for < 90/183 days (Recalculate)
or
12
Filing obligations
• Tax registration with the local tax bureau, where taxpayer usually
resides or performs his employment duties
• Monthly filing and withholding, by 7th of the following month
• Annual filing by 3rd month after year end if taxpayer fulfilled one of the following:-
- also receives overseas income
- with annual income > RMB 120,000 & stayed in China for one full year
- 2 sources of employment in China
- with taxable income but no withholding agents
13
Progressive rates : from 5% 45% (9 tax brackets)
• Monthly deduction of RMB 4,800 for expatriates.
Portion of monthly taxable income (with gross-up)
Portion of monthly taxable income (without gross-up)
Tax rateQuick
Deduction
Up to RMB475 Up to RMB500 5% RMB0
RMB476–RMB1,825 RMB501–RMB2,000 10% RMB25
RMB1,826–RMB4,375 RMB 2,001– RMB 5,000 15% RMB125
RMB4,376–RMB16,375 RMB 5,001– RMB 20,000 20% RMB375
RMB16,376–RMB31,375 RMB 20,001– RMB 40,000 25% RMB1,375
RMB31,376–RMB45,375 RMB 40,001– RMB 60,000 30% RMB3,375
RMB45,376–RMB58,375 RMB 60,001– RMB 80,000 35% RMB6,375
RMB58,376–RMB70,375 RMB 80,001– RMB 100,000 40% RMB10,375
RMB70,376 and above RMB 100,001 and above 45% RMB15,375
IIT rates
14
Non-taxable income for expatriates
Reasonable BIKs on reimbursement basis supported by valid receipts:-
- PRC Housing rental
- Business travel expenses
- 2x home trip tickets for expatriate only
- Meal and laundry expenses
- Language training expenses
- Children education costs incurred in PRC
- Relocation and moving expenses
15
Non-taxable income for expatriates (con’t)
Example
Annual salary
Housing Allowance
Home leave
Child education
Language training
Total Package
USD
100,000
30,000
5,000
23,000
2,000
160,000
USD
Taxable 100,000
Non-taxable -
Non-taxable -
Non-taxable -
Non-taxable -
Total taxable income 100,000
Total package PRC IIT Taxable Income
16
Cross-border work arrangements
1. Frequent travelling into China
- Overseas employment contract
- No specific assignment
2. Secondment
- Second to a China entity for a specified period of time
- Defined job duties and job title in the China entity
3. PRC employment
- Employed by a China entity
- No overseas employment contracts
4. Dual employment contracts – HK and PRC employment contracts
- Two distinct roles, PRC role and Hong Kong role
- Two separate employment contracts
- But difficult to convince tax authorities17
19
Days
Income sourced in China Income sourced outside China
Borne by Chinese entity
Borne by Overseas entity
Borne by Chinese entity
Borne by Overseas entity
< 90/183 days T NT NT NT
> 90/183 days
< 1yearT T NT NT
> 1year
< 5yearsT T T NT
> 5 years T T T T
IIT Implications on Cross-border employees
T = Taxable NT = Non-taxable
19
PRC – Time apportionment claim
Expatriates working in China may file monthly IIT on time apportionment basis if
all three conditions are met :-
• Concurrently holding a position with an entity outside China while
on China assignment / employment
• Required to spend some days during a month performing non-
China related duties outside China, and
• their non-China related wages would not be borne by a China entity
Total employment income (both China + Overseas) need to be reported and
IIT calculated fully. The total tax liability will then be prorated based on the
number of days physically spent in China.
20
Directors’ fees
Previously :-
- taxable as “Personal Services Income”
at 20% up to RMB 20,000
Now:-
- taxable as salary + wages
at progressive rates from 5% to 45%
Guoshuifa [2009] 121 (“Circular 121”)
Effective from August 2009
23
Secondment
- Secondees working under the supervision and control of the China
entity, carrying out activities that benefits the China entity.
- China entity borne the payroll costs of the Secondees
- IIT
Carrying out projects / providing services in China – P.E.
- Secondees in substance working under the supervision and control
of the Overseas employer, providing services to the China entity.
- Overseas company might be deemed as constituting a PE in China
- CIT
- BT
- IIT25
Double Pay
Previously :-
- Taxed separately as an additional month’s salary in the
month it is received (without any monthly allowable
deduction), not being topped up to the normal monthly
salary and taxed at higher marginal rate.
Now :-
- Topped up to the normal monthly salary and taxed at the
applicable marginal rate
Guoshuifa [2009] 121
Effective August 2009 27
Annual Bonus
Discretionary one-time annual bonus :
Taxed in the month of receipt
at preferential rate
to determine the top marginal tax rateAnnual Bonus
12
28
Guoshuihan [2009] No.694
• Qualified Plan
• Non-Qualified Plan
• Overseas Pension Plan e.g. MPF
Effective 10 December 2009
Enterprise Annuity Plan
29
Enterprise Annuity Plan (“Qualified Plan”)
IIT implications to Employee :-
Employer’s contributions
– taxable as employment income of the employee in the
month contributions are made
– taxed separately from the monthly salary with no
additional monthly allowable deduction
– Not deductible in calculating employee’s IIT liabilityEmployee’s contributions
30