Income Taxes for Expats in China Explained

Taxes follow you everywhere you go… For expat taxes you have to consider the tax situation both in your home and your host country.

This post is intended to give you a high level overview of the expat tax situation when earning income in China, plus more specifics for US citizens. I am not a tax professional, just someone who files my own taxes and tries to take great care to do it right. You should not in any way rely on the information provided here. Please consult a tax adviser. (You knew I had to put this special disclaimer in, right? Even though my Site Policies cover this, I wanted to make sure. I know how hard it is to find good tax info for US citizens abroad.)

US-expats living abroad still need to file a US tax return

US taxes for expatsAs a US citizen, no matter how much time you spend abroad, you have to file a US tax return, even if you may not owe taxes to Uncle Sam.

For taxes back in the US and your home state, I advise you to keep good track of all days you spend stateside including time of arrival in and departure from the US. You will need that once tax time comes around to figure out your residency and foreign earned income exclusion.

If your employer is a Chinese company you will not receive a W-2. There is no formal agreement (yet) between the US and China that would standardize the tax reporting. But I heard it is in the works, so in the future you (and the IRS) may get a W-2 from a Chinese employer.

The IRS has a local office in Beijing and offers yearly tax workshops that a very informative. I have also found them to be very responsive when I emailed them with a specific question.

China collects income tax, too

China taxes expats on the income they make in China. If you stay in China for more than 5 full consecutive years,  then your worldwide income becomes subject to Chinese individual income tax. To avoid this, leaving China for a duration of more than 30 days, breaks up the full year and restarts the clock.

China has a progressive tax system, so the tax rate increases with higher income, similar to the US. A minimum amount is exempt from taxes.

If you are paid in China, your employer will most likely withhold Chinese income taxes for you and issue a formal statement after the end of the year about the amount of tax paid. This statement is important when you want to move money out of the country, so hang on to it.

Proof you paid taxes to get your hard earned money out of China

To transfer money out of China (read more about money and banking in China), you have to prove that you paid your taxes to China on this income, and the year-end tax statement proves it. Don’t wait too long to use the tax statement because it does expire. Only the prior year can be used, so if you decide in 2013 that you want to wire your earnings from 2011 out of the country using the 2011 year-end statement to prove you paid taxes, you are out of luck.

There are other ways to transfer money out of the country but that is beyond the scope here.

Image credit: Arvind Balaraman/FreeDigitalPhotos.net


Comments

Income Taxes for Expats in China Explained — 11 Comments

  1. What’s China minimum annual income that you need to start paying for taxes? If the amount I make is below this, do I still need to file my tax forms or we’re allowed to skip it?

  2. I have a question. Worked one year in China. Before I was leaving China I asked for my tax payment (the company should have paid my tax according of my contract). Found out that they didn’t pay tax at all. What can I do about it? As I have another job in China with different company who asked for my taxes form

    • Hi Jessica, I’m not sure I fully understand your question, income returned from the Chinese tax authorities or in your home country? If you are a US citizen, you can use a so-called Foreign Tax Credit to get a credit for the tax you already paid in China, so you don’t have to pay again in the US. If you paid more in China than you would’ve paid in the US on that income, you won’t get income returned but you can carry over unused Foreign Tax Credit for use in the next year.

  3. can any one help me with the following information i will get a state pension here in the uk and need to know what or how i can get it transferred
    to my back account in nanning china when i move back to are home
    many thanks

  4. Hello,

    This was very informative, thank you. My previous employer was contractually obligated to pay my income taxes on my behalf. However, she is currently refusing to provide me with a year-end tax statement. Has anyone experienced a situation like this? Which authorities should I contact with regards to this. It seems fairly illegal to me.

    • Hi Brandon, I assume you refer to the Chinese individual income tax and the corresponding year-end tax statement, right? I have not heard before about any issues with receiving that and don’t know where you might get help. Sorry! But all your colleagues should also want to receive this form, so maybe together you have a better chance to get your employer to provide it.
      Do you need it urgently for your US tax return? My understanding from a discussion with the IRS tax attache in Beijing last year is that you don’t need an official Chinese tax document to include with your US tax return, any documentation that shows the amount of income and taxes paid, like payslips, should be sufficient. But I need to point out that I’m not a tax professional, so please don’t take my word for it and rather contact the IRS office yourself. If you are living abroad on April 15, you also have more time to file your return. Check out this post. Hope this helps!

    • Many tax authorities no longer issue tax statement to your employer. You can however pick it up from your local tax bureau with your passport.

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