If you’ve been in China a few years one thing you need to be careful about is the five year rule for tax. Basically after five full years in China you’ll start to be taxed on any earnings abroad (leasing out your old apartment in the UK, interest, dividends, capital gains etc), there are ways around it though. I got clarification from my financial advisor. here’s the situation:
If a foreign national has stayed in China for five full years consecutively you’ll be subject to pay tax on your worldwide income from the sixth year onwards.
A “full year” is defined as a year where the individual has lived on mainland China and has not left mainland China for either 30 days consecutively or 90 days cumulatively. Note, the day of arrival and departure from China are counted as days in China (i.e. if you fly to Korea on Monday morning, first thing and return on the Wednesday very late, that still only counts as one day outside China), so if you’re like me and you make a lot of short business trips to other countries they’re not worth anywhere near as much as you’d think.
Here’s the bitch, once you’ve been in China for five full consecutive years then you pay tax on your worldwide earnings, you can’t break this until you basically spend a full year outside China (less than 90 days on the mainland in a calendar year) at which the five year count starts again.
So, if you’re going to be here for a long time make sure that within the five years you’re either spending 90 full days outside China or one long trip of 30 full days outside China to reset your five year count!
6 Comments
You could always go French style and take the full month of August off and escape the hellish SH weather. Even if unpaid, certainly much cheaper than paying UK taxes!
But you might be ok anyway, that is assuming your company pays your China taxes for you. Tax rate is very high in China, well maybe not UK high, but all kinds of crap gets included in my “taxable salary” which I can only assume includes things like my housing costs, COLA, and other so called benefits. Still doesn’t add up and I wish I got paid that much, but whatever…cause here is the thing. I just give all of the official Tax Receipt fapiaos to the tax guys and they are able to use all of these company paid for China taxes generate a Credit that that fully offsets my US taxes. You should look into this kind of credit for UK….or just take 1 month off!
EQ, I’m tax equalised so it doesn’t make any difference for me, the company deducts the UK equivalent tax from my gross wages and then pays my Chinese tax for me (which i believe is slightly more than my UK tax). I offered to had in receipts for them to offset the tax but it seemed like they couldn’t be arsed!
2 years ago I spent more time out of China than in China, so I don’t need to worry for a couple more years anyway!
I believe it’s only about the possiblity of being taxed on extra-territory income. I don’t know one person who actually is being taxed on income earned outside of China.
But then again, everyone I know has taken their 30 days. Although on friend almost missed out on the “two transit days don’t count” – and only luckily missed his flight back from the US and stayed an extra day at home.
Dingleberry – yeah I am suppose to be tax equalized too, but luckily my company is so big and stupid, plus with the different legal entities/departments they get confussed easily, I have not been asked to write that big check to them! I even asked around quite a bit and tried to pay last year, but no one could help me. I tried, but guess I will give up this year
. So this part is pretty sweet, no taxes for me!
And by the way, my UK colleague does not have any tax equalization crap like I do. Why are you getting screwed?
How many fish and chippers do you own in Blackpool anyway?