China’s Ministry of Finance and State Tax Administration issued a document on March 16, further relaxing the threshold for foreigners and non-Chinese mainlanders who work and live on the mainland from paying tax on offshore income. Based on China’s personal income tax law, foreigners and residents of Hong Kong, Macao and Taiwan are defined as taxpayers if they have stayed on the mainland for at least 183 days within one year, but according to the new document, they do not need to pay taxes on offshore income if they stay on the mainland for under 183 days per year over six consecutive years, one year longer than that stated in the old regulation. The new document also defines “one day” as a “full 24 hours.” For example, if a Hong Kong resident goes to work in Shenzhen every Monday and commutes back for the weekend every Friday, their statutory stay on the mainland every week, according to the new document, is only three days – due to commuting time, Monday and Friday are not full days.
The official stay in the mainland for tax purposes would not add up to more than 183 days, so that person is not liable to pay tax on offshore income. The new document also defines “consecutive” as not having left the mainland for 30 days or more, meaning that if a foreigner or a non-Chinese mainlander does so, the length of consecutive stay will be recalculated. Since the new document took effect as of January 1, 2019, officials said that the clock would be zeroed for everyone from that day.
Experts believe the new document will help attract more foreign investment and skilled personnel. In the latter half of 2018, China launched a big tax reduction programme aiming to lighten taxpayers’ economic burdens and stimulate consumption. In August 2018, China revised its personal income tax law, raising the monthly personal income tax threshold from 3,500 yuan (US$507) to 5,000 yuan (US$725). The new cutoff point applies to mainland sources of income of foreign and non-mainland taxpayers.