CIRCULAR ON QUESTIONS CONCERNING TAX PAYMENTS FOR WAGE AND SALARYINCOME GAINED BY INDIVIDUALS WITHOUT RESIDENCE WITHIN THE TERRITORY OFCHINA
CIRCULAR ON QUESTIONS CONCERNING TAX PAYMENTS FOR WAGE AND SALARYINCOME GAINED BY INDIVIDUALS WITHOUT RESIDENCE WITHIN THE TERRITORY OFCHINA
(State Administration of Taxation: 30 June 1994 Coded Guo Shui Fa[1994] No. 148)
Whole Doc.
To the tax bureaus of various provinces, autonomous regions and
municipalities, the tax bureaus of various cities with independent
planning, and various sub-bureaus of the Offshore Oil Tax Administration:
In accordance with the Individual Income Tax Law of the People's
Republic of China (hereinafter referred to as Tax Law) and its Detailed
Rules for Implementation (hereinafter referred to as Detailed Rules for
Implementation) as well as related stipulations of the agreement on the
avoidance of double taxation China signs with other countries (hereinafter
referred to as tax agreement), we hereby clarify the following question
concerning how to determine tax on the wage and salary incomes gained by
individuals without residence in the territory of China who hold a post in
companies, enterprises and economic organizations (hereinafter referred to
as enterprises within China) or agencies and sites as well as permanent
organizations (hereinafter referred to as organizations within China) as
stated in the tax agreement set up in China by foreign enterprises, or who
engage in work within China for being employed or implementing the
contract:
I. Concerning determination of the sources of wage and salary income
In line with the stipulation of Section (1) of Article 5 of the
Detailed Rules for Implementation, the wage and salary income originates
from the territory of China shall be considered the wage and salary gained
by individuals during the period of actual work within China, that is: the
wage and salary gained by individuals during the period of actual work
within China which are paid by enterprises or individual employers whether
inside or outside China, all belong to incomes originate from within the
territory of China: the wage and salary gained by an individual during the
period of actual work outside China, which are paid by enterprises or
individual employers whether inside or outside China, all belong to
incomes originate from outside China.
II. Concerning the determination of individual tax payers with no
residence within the territory of China but who, within a tax- paying
year, live continuously or for an accumulated period of no more than 90
days within the territory of China, or who live continuously or for an
accumulated period of no more than 183 days within the territory of China
during the period as set in the tax agreement
In accordance with the related stipulations of Clause 2 of Article 1
of the Tax Law, Article 7 of the Detailed Rule for Implementation as well
as the Tax Agreement, the wage and salary for the individuals with no
residence in the territory of China but who, within a tax-paying year,
work continuously or for an accumulated period of no more than 90 days or
live continuously or for an accumulated period of no more than 183 days
within the territory of China, which are paid by the employers outside
China and which are not borne by the organization within China of the said
employers, are exempt from declaration for payment of individual income
tax. The above-mentioned individuals shall declare tax payment for the
wage and salary incomes gained during the period of their actual work
within China, which are paid by the enterprises or individual employers or
borne by the organizations within the territory of China. If these
enterprises or organizations within China for which enterprise income tax
is calculated and levied by the method of appraising and deciding profits
or enterprise income tax is not calculated and levied for having no
business income, wages and salaries gained by individuals during the
period or their actual work in China who assume office in and are employed
by the enterprises or organizations within China, which, whether are or
are not recorded in the account books of the enterprises or organizations
within China, shall all be regarded as wages and salaries paid by
enterprises within China or borne by the organizations within China.
The above-mentioned individuals shall declare tax payment within the
time limit as set in the Tax Law for their monthly payable tax.
III. Concerning determination of tax payment by individuals without
residence within the territory of China but who, in the tax-paying year,
live continuously or for an accumulated period not more than 90 days or
live continuously or for an accumulated period exceeding 183 days but less
than one year within the territory of China during the period specified in
the tax agreement.
In accordance with the related stipulations of Clause 2 of Article 1
as well as the tax agreement, the individuals without residence within the
territory of China but who, within the tax- paying year, work continuously
or for an accumulated period exceeding 90 days within China or who, during
the period as set in the tax agreement, live continuously or for an
accumulated period exceeding 183 days but less than one year within the
territory of China, shall all declare payment of individual income tax on
the wage and salary income gained during the period of the actual work in
China paid by the enterprises or individual employers within China and by
enterprises or individual employers outside China; the wage and salary
income they gained during the period of their work outside China, with the
exception of what is stipulated in Article 5 of the Circular, are exempt
from individual income tax.
The above-mentioned individuals shall declare payment of the monthly
payable tax in accordance with the time limit as stipulated in the Tax
Law. Individuals, who have wage and salary income paid by employers
outside China and not borne by the organizations within China, may
predetermine that within the taxpaying year they live continuously or for
an accumulated period exceeding 90 days or live continuously or for an
accumulated period exceeding 183 days within the period as specified in
the tax agreement, they shall declare payment for the monthly payable tax
within the time limit specified in the Tax Law; individuals, who cannot
predetermine that within the tax-paying year or during the related period
as set in the tax agreement, live continuously or for an accumulated
period exceeding 90 days or 183 days, may, within seven days of the
following month after reaching 90 days or 183 days, declare tax payment
together with the payable tax of the previous month.
IV. Concerning determination of tax payment by individuals without
residence within the territory of China but who have lived in China for a
full year.
In accordance with the stipulation of Clause 1 of Article 1 of the
Tax Law and Article 6 of the Regulations for Implementation, individuals
without residence within the territory of China but who have lived in
China for a full year but not exceeding five years shall all declare
payment of individual income tax on the wages and salaries gained by them
during the period of their work in China and paid by the enterprises or
individual employers within China and by enterprises or individual
employers outside China. An individual who has wage and salary income
gained during the period of work when he temporarily leaves China as
stated in Article 3 of the Regulations for Implementation shall declare
payment of tax only on the part paid by enterprises or individual
employers within China. If enterprises and organizations within the
territory of China which calculate and levy enterprise income tax by
adopting the method of verifying profit or those which do not have
business income and therefore enterprise income tax is not levied, the
wage and salary gained by individuals who assume office in or are employed
by the enterprises or organizations within China, no matter whether or not
recorded in the account books of the enterprises or organizations within
China, shall all be regarded as paid by the enterprises or organizations
within China where they assume office.
The above-mentioned individuals who, within one month, has both wage
and salary income gained during the period of work within China and wage
and salary income gained during the period when they temporarily leave
China and paid by the enterprises or individual employers within China,
shall have the month's payable tax calculated for both incomes and declare
tax payment within the time limit as set in the Tax Law.
V. Concerning determination of tax payment directors and high- level
managerial personnel within China.
For individuals who take the post as directors or high-level managers
of the enterprises within China, the director fees or wage and salary
gained by them and paid by the enterprises within China, the stipulations
of Articles 2 and 3 of this Circular are not applicable to them, shall
declare payment of individual income tax no matter whether or not they
perform their duties outside China during the period from the day they
hold the past as directors or high-level managers of the enterprises
within China to the day when they terminate the above-mentioned post; they
shall perform the tax paying obligation as set in the stipulations of
Articles 2, 3 and 4 of this Circular on the wage and salary gained by them
and paid by the enterprises outside China.
VI. The calculation of payable tax on the wage and salary income
gained in less than one month
Individuals fit in with the situation as mentioned in Articles 2, 3,
4 and 5 of this Circular who declare payment for the wage and salary
incomes gained during the period of less than one month shall have the
actual payable tax amount calculated for the wage and salary income in
line with a full month, the formula for calculation is as follows:
Payable tax amount =
The amount of payable tax on current wage & salary income X
Applicable tax rate - Rapid calculating deducting number X
(Actual days in China in the month ö Days in the month)
If what an individual of the above-mentioned case receives is daily
wage and salary, the daily wage and salary should be multiplied by the
number of days in the current month and, after being converted into
monthly wage and salary, the above-mentioned formula should be followed in
calculating the payable tax amount.
VII. The stipulations of this Circular takes effect from July 1,
1994. If the content of previous regulations is different from the content
of the stipulations of this Circular, the matter shall be carried out in
accordance with the stipulations of this Circular.
Appendix: Explanations on Examples
Example 1
Exampple 1: A person who is an employee of a foreign company was sent
to China in 1994. He contracted to provide labor service for an
engineering project in China for the foreign company, the number of days
totalled 85. The wage and salary remuneration he gained during the period
of work in China belongs to income derived from within the territory of
China, but since the total days of his work in China within a tax-paying
year was less than 90 days, whether or not he can enjoy the preferential
treatment of exemption from individual income tax shall be judged in
accordance with the stipulations of Article 7 of the Regulations on
Implementation of China's Individual Income Tax Law and Clause 1 of
Article 2 of the Circular on Questions Concerning Tax Payment for the Wage
and Salary Income Gained by Individuals Without Residence Within the
Territory of China (hereinafter referred to as Circular). Verification
reveals that enterprise income tax is levied by the method of appraising
and deciding profits, although personnel wage expenses are not listed in
the account book in China, however, since the individual is the employee
of the foreign company who contracted to undertake the project and was
sent to work for that engineering project, his wage should be borne by
that engineering project. According to related stipulations of Article 2
of the Circular, the wage and salary of that person should be regarded as
being borne by the contracted engineering project even though it is not
indicated in the project account book, the individual shall declare
payment of individual income tax (if there is agreement that the state
handles the matter, the principle is the same as above) on a monthly basis
within the time limit as stipulated in the Tax Law.
Example 2
Example 2: A foreigner who assumed a post at the representative
office of a foreign company within the territory of China worked
continuously for 60 days in China in 1994. The wage and salary
remuneration he gained during the period of work in China belonged to
income originated in the territory of China, but his working time in China
in a tax-paying year calculated continuously did not exceed 90 days,
whether or not he can enjoy the preferential treatment of exemption of
individual income tax shall be determined in accordance with Article 7 of
the Regulation on the Implementation of China's Individual Income Tax Law
as well as the stipulations of Clause 1 of Article 2 of this Circular.
Verification reveals that the representative office which engaged in the
work of understanding the market situation, providing materials on market
conditions as well as business liaison, consultancy and service activities
for its general organization and did not have business income and was
exempt from enterprise income tax, therefore no detailed book account was
established to clearly indicate the representative's wage and salary. But
because the person is an employee of the foreign company's office in
China, his wage and salary should be borne by the office, in line with the
stipulation of Article 2 of the Circular, although the wage and salary of
the person is not listed in the office's account book, it should be
regarded as a fact that the office has borne the person's wage and salary,
the person shall declare payment of individual income tax within the time
lime as set in the Tax Law on a monthly basis for the wage and salary
income he gained during the 60-day period of work in China, the person is
not required to declare payment of individual income tax (if there is an
agreement that the state handles the matter, the principle is the same as
above) for his wage and salary income gained during the period of work
outside China.
Example 3
Example 3: A foreigner of a country which has not signed a tax
agreement with China, who serves as an assistant manager of the market
promotion department of a enterprise with foreign investment within China,
the enterprise pays him a monthly wage of 10000 yuan, and the enterprise's
parent company outside China pays him US $ 4000 a month, the person
actually worked 250 days while performing his duty within China in 1994,
and actually worked 115 days outside China. Because the person lived
within the territory of China less than one year, but had exceeded 90
days, therefore in accordance with the stipulation of Clause 2 of Article
1 of the Individual Income Tax Law and Article 3 of the Circular, the
person shall pay individual income tax for the wage and salary paid to him
by the enterprise inside China and the enterprise outside China for the
250-day period of actual work within the territory of China, no individual
income tax is levied on the wage gained during the period of work outside
China and paid by the enterprise inside China and the enterprise outside
China.
Example 4
Example 4: A Hongkonger serves as the chief representative of a Hong
Kong company's representative office in Beijing, in 1994 he lived in the
area under China's taxation jurisdiction for less than one year and
actually worked for 200 days. In line with the stipulation of Clause 2 of
Article 1 of the Individual Income Tax Law and Article 3 of the Circular,
he shall pay individual income tax for the income he gained from within
China. Therefore, no matter whether or not his wage and salary are paid
within China, he shall pay individual income tax for the part of wage he
gained during the period of actual work of 200 days.
Example 5
Example 5: A foreigner who serves as a financial manager for a
enterprise with foreign investment within China receives a monthly wage of
10000 yuan paid by that enterprise and US $4000 paid by a company of the
foreign party, in the year 1994 the person actually worked for 340 days
within the territory of China, and went abroad on official business to
perform his duty for 25 days. The person has lived for a full year within
the territory of China, according to the stipulations of Clause 1 of
Article 1 of the Individual Income Tax Law, Article 6 of the Regulations
on Implementation of the Tax Law and Article 4 of the Circular, the person
shall pay individual income tax for the wage he gained during the 340-day
period of work within China and paid by the enterprise inside China and
the enterprise outside China; the wage and salary gained during the 25
days of work outside China belong to income coming from outside China, and
individual income tax is paid only for the part of wage paid by the
enterprise inside China.
Example 6
Example 6: A foreigner who began on January 1, 1994 to serve as a
deputy general manager of a enterprise with foreign investment within the
territory of China, the enterprise paid him a monthly wage of 20000 yuan,
at the same time, the overseas head office of the foreign party to the
enterprise also pays him US $ 4000 in wage on a monthly basis, for most of
his time he performs his duty abroad. In 1994 he came to work in China for
a period calculated to be 180 days. In accordance with the Individual
Income Tax Law as well as the stipulations of Article 5 of the Circular,
his tax- paying obligation in China in 1994 is determined as follows:
1. Because he is a high-level managerial person of the enterprise,
therefore, according to the stipulation of Article 5 of the Circular,
during his term of office in China from January 1 to December 31 of 1994,
he shall declare payment of individual income tax on a monthly basis
within the time limit as stipulated in the Tax Law for the monthly wage
and salary income of 20000 yuan paid by the enterprise.
2. Because the time of his work in China in 1994 did not exceed 183
days, according to the stipulations of the tax agreement, the wage and
salary income paid by his employer abroad can be exempt from declaration
on tax payment in China (if the person belongs to a resident of the
country which has not signed a tax agreement with China, or he is a
resident of Hong Kong, Macao or Taiwan, then the wage and salary paid by
his employer abroad by the standard of a monthly US $ 4000, individual
income tax shall be calculated and paid for that part gained during the
period of 180 days of work within China together with the wage of 20000
yuan paid on a monthly basis by the enterprise within China).
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