What Misunderstandings Should Be Avoided In Calculating Foreign Personal Income Tax?

The concept of the period of calculating foreign personal income tax is very important, including important concepts such as residence period, work period, 183 days, 1 years and 5 years. These will affect the calculation of personal income tax and the determination of tax liability. The misunderstanding in this matter is mainly due to the inaccurate understanding and calculation of the above period.

How to calculate 183 days?

Article seventh of the regulations on the implementation of the personal income tax law stipulates that individuals who have no domicile in China but who continue to live in China for a period of not more than 90 days in a tax year shall be exempt from the payment of personal income tax if the income derived from the territory of China is paid by an overseas employer and is not borne by the employer's institutions or places within the territory of China.

Article second of the Circular of the State Administration of Taxation on the duty to pay wages and salaries for individuals who have no domicile in China (second of the national tax [1994]) stipulates that individuals who have no domicile in China but have worked continuously or accumulatively for 90 days in China in the tax year or in the territory of China during the period of the tax agreement and regulations, do not live for more than 183 days in the territory of China. They are paid by overseas Chinese employers and are not paid by the Chinese domestic institutions of the employer, and are exempt from declaration and payment of personal income tax.

The general agreement is 183 days for China's agreements with other countries or regions. This article only elaborates on 183 days.

The misunderstanding of taxpayers is that it is often unclear how the 183 days are calculated according to natural days or in one year.

According to the above documents, the number of days refers to "in a tax year". According to the forty-sixth provision of the personal income tax law, the tax year stipulated in the tax law and this Regulation shall be from January 1st to December 31st.

Can it be determined that the 183 day refers to the calculation from the January 1st to the December 31st of the Gregorian calendar according to the above provisions? This is not necessarily related to the provisions of the relevant tax agreements (arrangements).

Article 1995 of the Circular of the State Administration of Taxation on the issue of income tax related to individuals who have no domicile in China is related to certain issues concerning tax treaties (No. 155 of national tax [No. 1995]). It is determined that the determination of residence time for taxpayers who have lived in China for more than 183 days during the period stipulated by the tax agreement shall be calculated according to the relevant entry and exit certificates and according to the specific provisions of the tax agreements.

Where the period of stay stipulated in a tax agreement is calculated in calendar years or tax years, the residence time shall be calculated from the period from January 1st to December 31st. If the period of stay stipulated in the tax agreement is calculated in any 12 or 365 days, the residence time shall be calculated in any 12 or 365 days from the date of the arrival of the resident individual of the contracting state.

Therefore, when calculating the 183 day, we should first confirm the relevant expression of the tax agreement.

For example, most countries in Japan, the United States, France, Germany, Malaysia and other countries are "related calendar year"; Norway, New Zealand, Thailand, Australia, South Korea and others are described as "in any 12 months".

For example, foreign individuals in Japan entered the country in August 2013, leaving the country in May 2014. Although their total stay in the territory is more than 183 days, they all belong to no more than 183 days in 2013 and 2014. Therefore, the wages paid abroad do not have personal income tax in the territory.

But if it is replaced by a foreign individual in South Korea, it will be "within any 12 months" during the period stipulated in the tax agreement. Therefore, it will not be able to carry out the preferential policies in any 12 months within 183 days in China.

About 1 years of calculation

Article 1 of the personal income tax law stipulates that individuals who have domicile in China or who live in China for 1 years shall pay personal income tax in accordance with the provisions of this law.

Individuals who live in China without residence or without residence and who live in the territory for less than 1 years shall pay their personal income in accordance with the provisions of this law.

Article third of the regulations on the implementation of the personal income tax law stipulates that 1 years' residence within the territory means 365 days' residence in China in a tax year.

The number of days for temporary departure is not deductible.

The temporary departure mentioned in the preceding paragraph refers to the departure of a period not exceeding 30 days in a tax year or accumulatively not exceeding 90 days.

The forty-sixth provision provides that the tax year mentioned in the tax law and this Regulation shall be from January 1st to December 31st.

The misunderstanding of this article often occurs in the neglect of taxpayers.

From January 1st to December 31st of the Gregorian calendar, as well as the calculation of temporary departure and total departure.

About 5 years of calculation

Article sixth of the regulations on the implementation of the personal income tax law stipulates that individuals who have no domicile in China but live for more than 5 years shall, from sixth years, pay their personal income tax on all their income from outside China.

The calculation is based on the first provision of the Ministry of Finance and the State Administration of Taxation on how to calculate residence in China for five years by the State Administration of Taxation (fiscal 98 [98]). Individuals who live in China for 5 years refer to individuals who have lived in China for 5 consecutive years, that is, they have lived for 1 years in each tax year for 5 consecutive years.

After 5 years' tax payment, according to article second of Document No. 98 of fiscal and taxation [1995], individuals who have lived in China for 5 years, who have lived in the territory for 1 years from the beginning of sixth years, should declare and pay taxes on their income from within and outside the country.

If the person resides within 90 days after a tax year after sixth years, the tax liability shall be determined according to the provisions of the seventh regulation of the personal income tax law, and the 5 year period shall be recalculated from the date of rehousing for 1 years.

It can be seen from this provision that tax payment has been paid for 5 years.

It is calculated from the beginning of each year after 5 years of residence. 1 years, the whole income tax is paid; the domestic income tax is less than 1 years; less than 90 days, not only can the tax liability be established according to the seventh provision of the personal income tax law, but also the 5 year period can be recalculated from the year of rehousing for 1 years.

Here, we should pay special attention to the fact that if a foreigner has lived in the territory for 1 years in sixth years after he has lived in the territory for sixth years, he should declare and pay taxes on the income derived from domestic and overseas sources. The income here includes not only wages and salaries but also other income, such as personal income from abroad, income from overseas rents, and so on.

Of course, if the temporary departure of the sixth year exceeds 30 days or accumulatively exceeds 90 days, it will not constitute 1 years' residence.

Calculation during work and residence period

Simply speaking, the number of foreign individuals in the territory is calculated according to the principle of "working for half a day, residence for one day".

Article 2004 of the Circular of the State Administration of Taxation on the implementation of tax treaties and individual income tax law by individuals with no domicile in China (No. 97]] stipulates that when deciding how to calculate the number of days of residence in China, the individuals who have no domicile in China shall be determined.

The number of days in residence in order to determine the tax liability in China in accordance with the provisions of the tax law and agreement or arrangement shall be calculated on the basis of the number of days that the person actually stays in China.

All of the above individuals' daily stay in China, departure, round-trip or multiple trips are calculated on a day basis.

The second provision stipulates that for the problem of how to calculate the actual working period in China during the day when individuals enter or leave the country, the persons who have no domicile in China who are in the same position in China or in overseas institutions or who only serve in overseas institutions shall calculate their working hours in the territory according to the provisions of the Circular No. 1 of the State Administration of Taxation on the calculation of personal income tax paid by individuals who have no domicile in China (125 of the national tax letter [1995]), and the days of their entry, departure, round-trip or multiple trips to and from inside and outside the country shall be regarded as the actual working days in China.

For example, a foreign individual entered the country in March 1, 2014, left in April 10th, reentered from May 1st and departing in September 30th. According to the principle of "residence for one day", the expatriate individual stayed in China for 194 days in 2014. If the expatriate person leaves in September 18th, the number of days he stays in the territory is 182 days.

For example, a foreign individual who has entered the country in March 1, 2014 and left the country in March 11th, according to the principle of "working for half a day", has worked for 10 days in China during March.

In practical work, it can be calculated in the following ways: the number of days in residence per month = departure day - entry day +1; monthly domestic work = departure date - Immigration day.