A recent article in The New York Times claimed incorrectly that since the 1990s, China has had American-style laws to tax the non-Chinese income of all Chinese citizens who have moved abroad, and is now enforcing those laws. China Daily has rebutted The New York Times‘ statement, but misinformation continues to spread like wildfire around the Internet — one particularly hilarious magazine is now even claiming that China invented FATCA in 1993, more than a decade before Richard Harvey did. In my previous post I translated the relevant laws and regulations proving that The New York Times is incorrect. In this post I provide further translations of Chinese source materials to correct these misconceptions.
First, I quote a book by a Chinese professor of accounting confirming that a Chinese emigrant (i.e. a person who has emigrated, but remains a Chinese citizen) is not a Chinese tax resident and thus is only subject to Chinese tax on mainland China-source income. Afterwards, I look into the historical background of some (non-tax) regulations defining exactly who qualifies as a “Chinese emigrant”.
Primarily, I discuss a November 2014 notice in which China’s State Administration of Taxation have stated, with reference to that definition, that a Chinese emigrant temporarily working in mainland China can qualify for a tax deduction given to residents of mainland China who are not domiciled there. This clearly confirms the tax authority’s view that not all Chinese citizens have Chinese domicile, and means that these Chinese citizens would not be Chinese tax residents when they live outside of mainland China.
Finally, on 11 January I added some one more section to this post (rather than make a fourth post on the subject of Chinese taxation): an October 2014 article in a State Administration of Taxation publication about the detailed process of determining the domicile of Chinese citizens who have residence abroad but return to China temporarily for work.
Table of contents
- Chinese citizens settled abroad are not Chinese tax residents
- The definition of “Chinese emigrant”
- The term “Chinese emigrant” in the tax regulations
- Tax authorities using above definition of “emigrant”
- Details on process of zhusuo determination
The following quote is from WANG Hong and CHEN Li, Tax Planning, Beijing: Tsinghua University Press, 2006, p. 203. The first author Mr. Wang is a professor of accounting at Sichuan University, a Certified Public Accountant in China, and a former visiting scholar at Dalhousie University in Canada.
The authors, summarising China’s Individual Income Tax Law, state that a Chinese tax resident is a person who has zhusuo in mainland China, or lives there during the tax year, and that a Chinese emigrant who is settled abroad is not a Chinese tax resident. They further note that someone who is not a Chinese tax resident is only liable to Chinese tax on their mainland China-source income, not their foreign-source income. Again I have left the word zhusuo untranslated; “domicile” is one possible translation, but for much more extensive discussion please refer to the earlier post on this issue.
|（一）居民纳税义务人||(1) Resident taxpayers|
|根据《个人所的税法》规定，居民纳税义务人是指中国境内有住所，或者无住所而在中国境内注满１年的个人。居民纳税义务人负有无限纳税义务，其所取得的应纳税所得，无论是来源于中国境内还是境外任何地方，都要缴纳个人所得税。根据上述规定，个人所得税的居民纳税义务人包括以下两类：||According to the provisions of the Individual Income Tax Law, a resident taxpayer is an individual who has a zhusuo in mainland China, or who does not have a zhusuo but has resided in mainland China for a period of one year. Resident taxpayers have an unlimited liability to tax: they must pay individual income tax on all of the taxable income they receive, no matter whether it originates in mainland China or in any place outside of the mainland. According to the provisions mentioned above, there are two types of resident taxpayers for purposes of individual income tax:|
|（１）在中国境内定居的中国公民和外国侨民。但不包括虽具有中国国籍，却没有在中国大陆定居，而是侨居海外的华侨和居住在香港、澳门、台湾的同胞。||(1) Chinese citizens, and foreign immigrants, who are settled in mainland China. However, this does not include Chinese emigrants who reside abroad and although they have Chinese nationality are not settled in mainland China, nor compatriots who live in Hong Kong, Macau, or Taiwan.|
|（２）从公历１月１日起至１２月３１日止，居住在中国境内的外国人，海外华侨和香港、澳门、台湾同胞。这些人如果在一个纳税年内，一次离境不超过３０日，或者多次离境累计不超过９０日的，仍应被视为全年在中国境内居住，从而判定为居民纳税义务人。||(2) Foreigners, overseas Chinese emigrants, and Hong Kong, Macau, and Taiwan compatriots who live in mainland China from 1 January up to 31 December. If within a tax year these people leave the mainland for no more than thirty days at a time, and no more than ninety days in total across multiple times, they will still be regarded as living in mainland China, and will be judged to be resident taxpayers.|
|（二）非居民纳税义务人||(2) Non-resident taxpayers|
|根据《个人所得税法》规定，非居民纳税义务人是“在中国境内无住所又不居住或者无住所而在境内居住不满１年的个人“。非居民纳税义务人承担有限纳税义务，既仅就其来源于中国境内的所得，向中国缴纳所得税。||According to the provisions of the Individual Income Tax law, a non-resident taxpayer is “an individual who does not have a zhusuo and does not reside in the mainland of China, or who does not have a zhusuo and who has resided in the mainland for less than a year”. Non-resident taxpayers bear limited tax liability, and only pay tax to China on their income derived from sources in mainland China.|
In my translation above I rendered the term huaqiao (华侨) as “Chinese emigrants”. Another common translation is “overseas Chinese”, though that is a much broader term which often includes people whose ancestry is many generations removed from China. Professors Wang and Chen above use huaqiao as a general term to describe Chinese citizens who have settled abroad permanently.
The Overseas Chinese Affairs Office (OCAO) of the State Council, in April 2009 regulations, set forth the official definition of huaqiao as follows. This definition does not have any direct legal relation to the determination of tax residence (which relies mainly on the concept of zhusuo), but in practice this definition has influenced the State Administration of Taxation’s views in other ways, as I discuss later in this post.
Regulations Regarding the Definition of the Status of Huaqiao, Ethnic Chinese of Foreign Nationality, Returned Emigrant, and Relative of an Emigrant
|国侨发〔2009〕5号 2009年4月24日||Overseas Chinese Affairs Office of the State Council, Notification No. 5 of 2009, 24 April 2009|
|为适应侨情变化和侨务工作发展的需要，根据《中华人民共和国归侨侨眷权益保护法》及其实施办法，现对华侨、外籍华人、归侨、侨眷的身份做如下界定。||In order to respond to changes in the condition of emigrants and the needs of the development of work on emigrants’ issues, on the basis of the Law of the People’s Republic of China on the Protection of the Interests of Returned Emigrants and Their Dependents and its implementation procedures, the statuses of huaqiao, ethnic Chinese of foreign nationality, returned emigrant, and relative of an emigrant are defined as follows.|
|一、华侨是指定居在国外的中国公民。||1. Huaqiao means a Chinese citizen who has settled outside of the country.|
|（一）“定居”是指中国公民已取得住在国长期或永久居留权，并已在住在国连续居留两年，两年内累计居留不少于18个月。||(1) “Settled” means that a Chinese citizen has obtained the right of long-term or permanent residence in the country where he lives, has resided continuously in the country where he lives for two years, and within those two years has stayed for a total of no less than 18 months.|
|（二）中国公民虽未取得住在国长期或者永久居留权，但已取得住在国连续5年以上（含5年）合法居留资格，5年内在住在国累计居留不少于30个月，视为华侨。||(2) A Chinese citizen who, although he has not obtained the right of long-term or permanent residence in the country where he lives, has however obtained legal residence qualifications in the country where he lives for five continuous years or more (including five years), and within those five years has stayed in the country where he lives for a total of no less than 30 months, is also regarded as a huaqiao.|
|（三）中国公民出国留学（包括公派和自费）在外学习期间，或因公务出国（包括外派劳务人员）在外工作期间，均不视为华侨。||(3) A Chinese citizen who leaves the country to study abroad (including government-sponsored and self-funded), or who leaves the country on official business (including labor service personnel dispatched abroad) shall not be regarded as a huaqiao during his period of foreign study or period of foreign employment.|
|二、外籍华人是指已加入外国国籍的原中国公民及其外国籍后裔；中国公民的外国籍后裔。||2. “Ethnic Chinese of foreign nationality” means a person originally a Chinese citizen who has obtained foreign nationality and his descendants of foreign nationality, or a Chinese citizen’s descendants of foreign nationality.|
|三、归侨是指回国定居的华侨。||3. “Returned emigrant” means a huaqiao who has returned to the country [i.e. China] and settled.|
|（一）“回国定居”是指华侨放弃原住在国长期、永久或合法居留权并依法办理回国落户手续。||(1) “Returned to the country and settled” means that a huaqiao has given up the long-term, permanent, or [other] legal qualification of stay in the country where he lived and has completed the procedures for returning and establishing household registration in accordance with the law.|
|（二）外籍华人经批准恢复或取得中国国籍并依法办理来中国落户手续的，视为归侨。||(2) An ethnic Chinese of foreign nationality who, upon approval, has resumed or received Chinese nationality and has completed the procedures for coming to China and establishing household registration in accordance with the law, shall be regarded as a returned emigrant.|
I translated this mainly to give a general idea of the standards the Chinese government uses to judge what constitutes “emigration”. The purpose of the detailed definition of huaqiao under these regulations was not to identify the tax residence of Chinese citizens abroad, but to clarify the status of Chinese citizens in China.
Previous regulations in 1984 and 2005 had definitions of huaqiao and “settled abroad” which were open to abuse. There were some people who would obtain foreign resident status in a country with flexible immigration rules (or even citizenship in one of the countries with an investor naturalisation programme), but would then not actually reside there; instead they’d remain in China and use their status as huaqiao to gain various privileges. This was particularly a sore point in university admissions, and it is still an issue in mainland Chinese investor immigration to Hong Kong. This kind of problem is not limited to China, either; South Korea faced analogous issues with “residence laundering”, because people with emigrant status could be exempted from military service and send their children to international schools.
The terms huaqiao (and for that matter, “settled” dingju 定居) are not used in either the Individual Income Tax Law itself, nor in the IIT Law Implementation Ordinance‘s definition of zhusuo. However, the Implementation Ordinance does use the term huaqiao at one other point: in discussing the “6(3) Deduction” on the Chinese-source wages of a person who does not have zhusuo in mainland China.
|第二十七条 税法第六条第三款所说的附加减除费用，是指每月在减除3500元费用的基础上，再减除本条例第二十九条规定数额的费用。||Article 27: As stated in Article 6, Paragraph 3 of the Tax Law, the “extra deduction” means, in addition to the basic deduction of ¥3,500 per month, further subtracting the amount of the deduction provided for in Article 29 of this Ordinance.|
|第二十八条 税法第六条第三款所说的附加减除费用适用的范围，是指：||Article 28: As stated in Article 6, Paragraph 3 of the Tax Law, the “scope of applicability of the extra deduction” means:|
|（一）在中国境内的外商投资企业和外国企业中工作的外籍人员；||(1) A foreign-national employee working at an enterprise with foreign investment, or a foreign enterprise, in mainland China;|
|（二）应聘在中国境内的企业、事业单位、社会团体、国家机关中工作的外籍专家；||(2) A foreign expert working at an enterprise, work unit, social group, or state organ in mainland China;|
|（三）在中国境内有住所而在中国境外任职或者受雇取得工资、薪金所得的个人；||(3) An individual who has a zhusuo in mainland China, and receives wage or salary income in the course of a post or employment outside of mainland China;|
|（四）国务院财政、税务主管部门确定的其他人员。||(4) Other persons identified by the fiscal and tax authorities of the State Council.|
|第二十九条 税法第六条第三款所说的附加减除费用标准为1300元。||Article 29: As stated in Article 6, Paragraph 3 of the Tax Law, the “standard of the extra deduction” is ¥1,300.|
|第三十条 华侨和香港、澳门、台湾同胞，参照本条例第二十七条、第二十八条、第二十九条的规定执行。||Article 30: With regards to huaqiao and Hong Kong, Macau, and Taiwan compatriots, refer to the provisions of Articles 27, 28, and 29 of this Ordinance for implementation.|
The Beijing municipal office of the State Administration of Taxation has stated in a November 2014 notice that it uses the OCAO regulations’ definition of huaqiao in determining qualification for the 6(3) Deduction.
The notice linked discusses the case of a taxpayer who did not qualify as a huaqiao: the taxpayer received a U.S. green card in March 2014, but worked in China from January to September of that year, so the taxpayer was denied the deduction. However, after quoting those rules and the OCAO definition of huaqiao, the State Administration of Taxation conclude the notice by stating that a taxpayer who proves huaqiao status does qualify for the 6(3) Deduction on the wages they earn when working in China:
|（二）关于华侨适用附加扣除费用问题||(2) Regarding issue of the applicability of the extra deduction to huaqiao|
|对符合国侨发5号文件规定的华侨身份的人员，其在中国工作期间取得的工资、薪金所得，税务机关可根据纳税人提供的证明其华侨身份的有关证明材料，按照《中华人民共和国个人所得税法实施条例》第三十条规定在计算征收个人所得税时，适用附加扣除费用。||With regards to people who fulfill the definition in SC-OCAO Notification #5/2009 of having huaqiao status, for the wages or salary income they receive while working in China, the tax authorities may, on the basis of documentary proof provided by the taxpayer regarding his status as a huaqiao, permit the application of the extra deduction when calculating the individual income tax, in accord with People’s Republic of China Individual Income Tax Law Implementation Ordinance Article 30.|
This means the tax authorities have confirmed that the category of “Chinese citizens who do not have zhusuo in mainland China” is not empty but has at least one group of members: huaqiao. This notice does not limit the membership of that category; the tax authorities may also choose to determine that other people who are not huaqiao also lack zhusuo in mainland China. However, they have not publicly stated anything about whether or when they will do this, and it is far too early to speculate on their eventual decisions.
Up until recently the State Administration of Taxation have made no effort towards enforcing Chinese income tax on Chinese tax residents temporarily posted abroad, which means they simply have never looked into the issue of making zhusuo determinations (or for that matter, tax treaty residence determinations) against people who are not physically present in China. As the tax authorities gain more experience with such determinations, we can probably expect to see more detailed standards. However at this point it is already clear that China is not making blanket determinations that all Chinese citizens ipso facto have zhusuo in China.
An October 2014 article in China Taxation News, a newspaper published by the State Administration of Taxation itself, goes into more detail about some concrete circumstances of Chinese citizens with foreign permanent residence who work temporarily in China (e.g. family abroad, work contract signed outside of China) and discusses how that would affect the determination of zhusuo and eligibility for certain Chinese tax deductions. The author, Ms. GUO Hongxia, writes:
How to determine the tax status of “green card” holders
|海归人士学成归国，其身份一般有如下两种变动：1.加入了其他国家的国籍，以外籍身份回国就业；2.保留原来的中国国籍，但已取得了他国的永久居留权，也就是人们常说的拿到“绿卡”。属于第一种类型的个人，其税收身份相对比较清晰，他们可按照外籍个人的相关法规进行判断，但对于第二种类型的个人，他们的税收身份如何判断，通常存在一些不确定性。||When people return to China after living abroad, their status has often changed in one of two ways: (1) they have obtained the nationality of another country, and return to China for employment as foreign citizens; or (2) they retain their original Chinese nationality, but have obtained permanent residence in a foreign country, or what people often call getting a “green card”. For individuals belonging to the first group, their tax status is fairly clear: they are classified according to the relevant laws for foreigners. However, for individuals belonging to the second group, there is commonly some uncertainty in how to determine their tax status.|
Note that the article is discussing the Chinese tax status of people with permanent residence in foreign countries in general (and not just U.S. green card holders). Anyway, to keep this update from getting too long, here I omit the translation of some paragraphs which just summarise the Individual Income Tax Law and its Implementation Act, and the final paragraph of the article which briefly describes the 6(3) Deduction already discussed in much more detail above. Also, I added some paragraph breaks to the below (which in the original was just two giant paragraphs):
|判断持“绿卡”个人在华税收身份的关键，在于判断他们在中国境内是否属于有住所个人。通常情况下，如果持“绿卡”个人在境内工作，在境内有户口，家庭成员也居住在境内，其应属于在中国境内有住所的个人，也即中国的税务居民，必须就境内外所得在中国纳税。||The key to identifying the Chinese taxpayer status of an individual who holds a “green card” is in identifying whether or not the person is classified as having a zhusuo in mainland China. Under normal circumstances, an individual holding a “green card” who works in the mainland, has household registration in the mainland, and has family members also living in the mainland, should be classified as an individual having zhusuo in mainland China, and thus is a Chinese tax resident and must pay Chinese tax on all income from both within and outside the mainland.|
|在实际操作中，有些持“绿卡”个人可能在境外签订劳动合同，但被派遣到中国境内进行短期工作，他们的家人也在境外，这种情况下的税收身份判断会比较复杂。||In practice, some individuals who hold “green cards” may have signed work contracts abroad but were sent to mainland China to carry out short-term employment, and their family members also remain outside of the mainland. Under these circumstances, the determination of tax status is more complicated.|
|首先，住所判定。由于其家庭及经济利益关系（包括雇佣关系）皆在境外，如果在上述派遣等原因消失后，他们将离开中国回到“绿卡”签发所在国，那么中国可能不被认定为他们的习惯性居住地，他们在中国境内属于无住所个人。||First, the determination of zhusuo. Because their family members and economic interests (including employment relationships) were all outside of the mainland, once the above-mentioned work assignment or other reasons [for being in China] came to an end, they would leave China and return to the country which issued them the “green card”. So China could not be regarded as their place of habitual residence, and they would be classified as individuals not having zhusuo in mainland China.|
|其次，境内停留天数影响。对于在境内无住所个人，只有在他们在境内居住满一年的情况下，才构成中国的税收居民。如果这些个人只是短期在华工作，在一个年度中没居住满一年，按照上述法规的规定，他们在当年度中并不构成中国的税收居民。||Second, the number of days they remain in the mainland is also a factor. With regards to individuals who do not have zhusuo in the mainland, they only become Chinese tax residents on the condition that they live in the mainland for at least a year. If these people only work in China for a short period of time, and within a year don’t live for the whole year, according to the above-mentioned principles, during that year they would not become Chinese tax residents.|
|然而，在实际情况中，笔者观察到有部分税务机关出于谨慎性考虑，在判断“绿卡”持有人的税收身份时，采用反推原则，即只要是持中国护照的个人，税务机关都先认定他们为中国税收居民，如纳税人有异议，须提供相应的证据，推翻之前的判定，这些证据包括他国税务机关出具的税收居民身份证明、家庭住址、财产所在地资料等。在同时为双方税收居民的情况下，还将参照相关的双边税收协定进行进一步的判断。||However, in practice the author has observed that some tax offices, out of cautiousness, would employ the converse principle when making determinations of “green card” holders’ tax status. That is to say, if an individual held a Chinese passport, the tax authorities would first regard the person as a Chinese tax resident, and if the taxpayer objected, he would have to provide corresponding proof in order to overturn this judgment. Such proof would include a certificate of tax residence issued by another country’s tax authorities, addresses of family members, asset information, and the like. If the person were at the same time a tax resident of both places, reference would them be made to the relevant double taxation agreement in order to make a further determination.|
Note that Ms. Guo is discussing zhusuo determinations against Chinese citizens who live and work in China, not Chinese citizens abroad. Personally I think it’s reasonable for a tax authority to assume that if you are a citizen of a country and work in that country, you are domiciled in that country unless you provide evidence otherwise. They are not saying that a theoretical right to work in the country makes you a tax domiciliary automatically no matter where on earth you actually live (as the U.S. does); they are saying that your actual exercise of the right to work in the country leads to a rebuttable presumption of tax domicile.
A couple of miscellaneous points: Ms. Guo’s article makes no reference to the OCAO huaqiao standards, suggesting that someone could successfully claim lack of zhusuo despite not meeting the huaqiao standards, for example if their family members were abroad and their economic interests were abroad. The article also mentions two of the concrete factors which the authorities are using to judge economic interests: the location of the employer, and the location of assets. (I also note that, with respect to the U.S. instead of China, almost every Brocker could meet both the huaqiao standard and the family-members-and-economic-interests standard.)
More importantly, Ms. Guo explicitly confirms what should be an obvious point, but which no one who buys into The New York Times‘ frenzy seems to understand: that a determination of tax residence in a treaty country overrides a determination of domestic zhusuo. China has nearly a hundred tax treaties, including one with all of the countries which are major modern destinations for Chinese emigration. Precisely none of these treaties have an American-style “saving clause” letting China tax its own citizens as if the treaty did not exist, even the newest ones from within the past year. Thus, if the Chinese government really do want to impose citizenship-based taxation at some future date and actually have it apply to any significant number of people, they would have to renegotiate or withdraw from all of their tax treaties.