Expatriates Must Pay Chinese Income Taxes

by Mary Swire, Tax-News.com, Hong Kong

04 August 2004

A senior official from the Chinese Ministry of Finance confirmed on Monday that expatriates living on the mainland for less than one year must pay income tax on what they earn in China, although income derived from elsewhere will remain free from Chinese taxation.

Chinese law stipulates that both residents and non-residents are subject to tax on income earned within China’s borders.

This includes citizens of Hong Kong, Macao and Taiwan who have no residency in China and have lived on the mainland for less than one year, the official told the Shanghai Daily on condition of anonymity. Individuals from these territories make up the bulk of expatriates in China.

As a percentage of China’s tax take, revenues from personal income tax made up 6.5% of the total in 2003, up from 1.4% in 1994 when the system was reformed and uniform rates were introduced for both Chinese and foreign taxpayers.

The official also stated that the government plans further reforms of the personal income tax system in an attempt to develop a universal tax rate for all taxpayers whilst maintaining differential rates for certain taxable items.

Taxable income currently falls into eleven major categories such as wages, business profits and returns from property investment.

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