Preparing for New Individual Income Tax Policies on Foreign Income

On January 17, 2020, the PRC Ministry of Finance and State Administration of Taxation jointly issued the Announcement on Individual Income Tax Policies Relating to Foreign Income (关于境外所得有关个人所得税政策的公告) (Announcement No.3), which further clarifies Chinese individual income tax (IIT) policies with respect to foreign income including the scope of foreign income, calculation of foreign tax credit, procedures on tax filing of foreign income and compliance requirements under cross-border secondment arrangement.

The principle that Chinese tax-resident individuals must pay IIT on their worldwide income, including income sourced within territory of China (domestic income) and income sourced outside China (foreign income) is immutable

Article 1 of the PRC Individual Income Tax Law (IIT Law) (中华人民共和国个人所得税法) provides that an individual who is domiciled in China, or who is not domiciled in China but has resided in China for 183 days or more cumulatively within a calendar year, is a tax-resident taxpayer. A tax-resident taxpayer is subject to IIT in China on his or her income sourced from both within and outside China; an individual who is not domiciled in China and has resided in China for less than 183 days cumulatively within a calendar year, is a non-resident taxpayer. A non-tax-resident taxpayer is subject to IIT in China only on his or her income sourced from within China.