Taxation of Chief Representative of a Representative Office in China
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Scenario
Mr. A, the chief representative of Uscorp Shanghai office. Mr. A is based in the United States of America but is required to make regular trips to Shanghai. As such, he has the obligation to declare and pay individual income tax in PRC every month as from the start of his appointment, his obligation to pay tax is determined based on his tax resident status in China and other conditions.
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Determination of tax resident status
According to the latest individual income tax law of the People's Republic of China, an individual who has a domicile in China or has no domicile but has lived in China for at least 183 days in a tax year is a resident individual. An individual who has no domicile or does not live in China, or who has no domicile but has lived in China for less than 183 days in a tax year, is a non-resident individual.
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Scope of salary
According to the tax laws and regulations of the People's Republic of China, the term "income from wages and salaries" refers to the wages, salaries, bonuses, year-end raises, labor dividends, allowances, subsidies and other income related to the employment or employment of an individual.
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Calculation of taxable income
According to the number of days that foreigners live in China, they can be classified into the following groups: non-resident individual and resident individual who is not domiciled in China:
(1) A non-resident individual who has resided in the aggregate for not more than 90 days inside China within a tax year only needs to calculate and pay individual income tax on the wages and salaries which are earned during his or her working inside China and paid and borne by the employer inside China. The formula for computing the income from wages and salaries for the current month (Formula 1) is as follows:
Amount of income from wages and salaries for the current month = total amount of wages and salaries obtained inside and outside China in the current month ×(amount of income from wages and salaries paid inside China in the current month/total amount of wages and salaries obtained at home and abroad in the current month) ×(number of days of working inside China in the working period during which wages and salaries for the current month are generated/number of Gregorian calendar days in the working period during which wages and salaries for the current month are obtained)
(2) A non-resident individual who has resided in the aggregate for 90 up to 183 days inside China within a tax year shall calculate and pay individual income tax on the income from wages and salaries for the period of his or her working inside China; and no individual income tax shall be levied on the income from wages and salaries for the period of his or her working outside China he or she obtains. The formula for computing the income from wages and salaries for the current month (Formula 2) is as follows:
Amount of income from wages and salaries for the current month = total amount of wages and salaries obtained inside and outside China in the current month× (number of days of working inside China in the working period during which wages and salaries for the current month are generated/number of Gregorian calendar days in the working period during which wages and salaries for the current month are generated)
(3) Where the number of consecutive years in each of which a resident individual who is not domiciled in China has stayed in China for a total of 183 days or more is less than six, and the individual is eligible for the preference as prescribed in Article 4 of the Implementation Regulation, individual income tax shall be calculated and paid on all the income from wages and salaries he or she has obtained, excluding the income from wages and salaries for the period of his or her working abroad and paid by overseas entities or individuals. The formula for computing the income from wages and salaries (Formula 3) is as follows:
Amount of income from wages and salaries for the current month = total amount of wages and salaries obtained inside and outside China in the current month ×[1-(amount of wages and salaries paid overseas in the current month/total amount of wages and salaries obtained inside and outside China in the current month) ×(number of days of working outside China in the working period during which wages and salaries for the current month are generated/number of Gregorian calendar days in the working period during which wages and salaries for the current month are generated)]
(4) If an individual without a residence has lived in China for 183 consecutive days for six consecutive years, and has not left China for more than 30 days in one of these six years, the individual income tax shall be calculated and paid for all the income from wages and salaries obtained in China and abroad.
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Tax exempt subsidy policy and special additional deduction
From January 1, 2019, foreign individuals can enjoy six special additional deductions.
During the period from January 1, 2019 to December 31, 2021, foreign individuals can still enjoy the tax-exempt preferential policies of housing subsidies, language training fees, children's education fees and other subsidies, but they cannot enjoy them both at the same time with special additional deductions policy. Once a policy is selected, it shall not be changed within one tax year.
From January 1, 2022 onwards, foreign individuals will no longer enjoy the tax-exempt preferential policies of housing subsidies, language training fees, children's education subsidies, and shall enjoy special additional deductions according to the regulations.
Therefore, Mr. A's Chinese language training fees, paid home leave and medical benefits can still be exempted from individual income tax before December 31, 2021. For any non-taxable items, Mr. A shall provide valid evidence of the amount incurred, such as invoices or receipts.
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Tax rate
According to the amount of taxable income per month of Mr. A, the personal income tax rate will fluctuate between 3% and 45%.
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Calculation of tax payable
Withholding tax payable in the current period = (Accumulated withholding taxable income×tax rate - Quick calculation deduction) - Accumulated tax deduction - Accumulated withholding tax paid
Accumulated withholding taxable income = Accumulated income - Accumulated tax exempt income - Accumulated deduction of expenses - Accumulated special deduction - Accumulated special additional deduction - Accumulated other deductions determined by law
Among them: the accumulated deduction of expenses is calculated by multiplying 5000 yuan / month by the number of months in which the taxpayer has been employed in the unit up to the current month.
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Withholding tax and annual settlement
The representative office is the withholding agent. Whether it pays in China or overseas, the representative office must withhold and pay Mr. A's income tax.
Individual income tax shall be calculated on an annual basis when individual residents obtain comprehensive income; where there is a withholding agent, the withholding agent shall withhold and remit the tax on a monthly basis or at times; where it is necessary to carry out final settlement and payment, the final settlement and payment shall be carried out from March 1 to June 30 of the next year in which the income is obtained.
Income from wages, salaries, remuneration for services, remuneration for contributions and royalties obtained by non-resident individuals, where there is a withholding agent, the withholding agent shall withhold and remit the tax on a monthly or sub monthly basis, without handling the final settlement.
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