Tag Archives: China

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.

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Responding to a recent The New York Times article (previously discussed here) and all the Chinese media outlets who copied their report without fact-checking it (hi there Phoenix News), China Daily pointed out this afternoon that China does not have the system of taxation which the NYT attributes to it.

In their headline, China Daily asks, “Will China tax citizens’ overseas income?”, but all the article gives us is proof of Betteridge’s Law of Headlines with Chinese characteristics: a newspaper article can ask a question in a headline without bothering to answer it at all in an article. The article walks a thin line between making snarky comments about the U.S. and pointing out the need for international cooperation on tax matters. but in the end it only says that China is seeking to prevent tax evasion and fight corruption, and says nothing concrete about expanding the Chinese tax base to citizens permanently resident abroad. Translation after the jump.

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Update: please see our two newer posts (9 January and 10 January) with even more proof that China does not have citizenship-based taxation.

Update 2: Chinese tax expert Bernard Schneider of the Queen Mary University of London School of Law has stated that The New York Times article is incorrect and that China does not tax non-resident Chinese citizens on their non-China income. Please see his full comments to Virginia La Torre Jeker, tax lawyer based in Dubai, reported in her column on AngloINFO (in the update at the bottom). Professor Allison Christians also notes that other experts she knows have written to her to refute the NYT article. We are still awaiting a correction from the NYT.

In an article on Wednesday (to which I was alerted by kermitzii in our comments section), The New York Times makes the following assertion:

China Wants Taxes Paid by Citizens Living Afar

… national and municipal tax agencies in China are quietly beginning to enforce a little-known and widely ignored regulation: Citizens and companies must pay domestic taxes on their entire worldwide incomes, not just on what they earn in China.

The nascent campaign this winter puts China on the same side as the United States in a global debate over whether taxation should be primarily national or global. On the other side of the issue are European nations, Japan, Australia and Canada, all of which tax people within their borders but exempt most expatriates and overseas subsidiaries from paying income taxes in their home countries.

The bolded text, however, is incorrect. Eritrea is the only country left “on the same side” as the United States in this debate. China, just like Japan, Australia, Canada, and European countries in general, taxes resident individuals on their entire worldwide income, and non-resident individuals on their domestic income. This is clear even from a cursory reading of China’s Individual Income Tax Law: it’s in the very first article.

China’s method of determining an individual’s tax residence is not particularly unusual. It does not look to citizenship whatsoever, but instead relies mainly on household registration and the location of one’s family members and economic interests; the regulations are similar to (though less detailed than) the “sufficient ties” test in the UK or the “residential ties” test in Canada. Nor is this definition in flux: it has remained basically unchanged for the past two decades. The only real difference is that the bureaucracy in China is less responsive and harder to navigate.

After the jump I provide translations of the relevant Chinese laws and regulations regarding this point, as well as a quote from a book by two actual Chinese tax law professors.

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At the beginning of this year, China began implemented a new system of self-reporting for foreign assets by amending two-decade-old regulations which required reporting of foreign transactions. Though these amendments do not add any new reporting requirements for financial institutions, neither the old nor new regulations ever applied to Chinese citizens permanently resident abroad, they don’t violate the privacy laws of foreign countries, and the implementation of the regulations is actually proceeding on schedule rather than being delayed by years, the Compliance-Industrial complex has been quick to saddle it with the inaccurate name of “China’s FATCA”.

For a translation of the regulations and a brief analysis of the impact of the amendments, keep reading. This post probably won’t be of much use to U.S. Persons seeking practical advice for dealing with the citizenship-based taxation mess that the Homelanders have thrown at us; it’s a supplement to my next post that’s actually about China and FATCA.