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Americans living in China have to deal with one of the most complicated tax systems in the world. Fortunately, we’re here to help make sense of it all.
China’s essential role in the global market makes it a common home for Americans living and working abroad. But what are China’s taxes like for US expats? Let’s take a look.
First things first: do US expats living in China have to file taxes with the Chinese government at all? In most cases, the answer is yes.
You’ll still have to file a US annual tax return, too. If you are a citizen or permanent resident of the United States, then you are obligated to file US taxes with the IRS each year, no matter where you live. In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with the FBAR FinCEN 114 Form
Unfortunately, China’s tax policies are remarkably complex. Many Americans living abroad in China are baffled by the complicated and ever-changing rules of Chinese expat taxation.
To help clarify your potential tax obligations, here’s a rundown of how China’s taxes impact US expats.
In China, taxation is based on residency status. Expats who are considered tax residents of China for at least five years are taxed on their worldwide income, while non-residents and those who have been residents for less than five years are only taxed on their China-sourced income.
Residents who only receive traditional employment income from a single Chinese employer will have their taxes withheld on a monthly basis. Residents whose income is not withheld will need to file their own taxes each month, and some may also have to file an annual reconciliation tax return. This includes residents who:
Non-residents will only need to file if they meet certain income thresholds.
As a foreign national, you are required to register with the State Administration of Taxation (SAT) as soon as you are eligible for taxation in China.
China has one of the most intricate tax residency policies in the world. But as a general rule, expats are considered residents of China if:
If you don’t meet these standards, you will typically be considered a non-resident for tax purposes.
Categories of income subject to taxation in China include:
Most forms of income are taxed monthly at progressive rates ranging from 3%–45%. To calculate the tax liability in these instances, simply multiply your income by the tax rate percentage, and if applicable, subtract the quick deduction.
The Chinese income tax rates from China’s State Administration of Taxation (SAT) for residents and non residents in 2021 are as follows.
Note that there is a monthly standard deduction for foreign nationals of RMB 5,000.
Pro Tip: Filing a joint return isn’t allowed in China. Spouses are assessed separately in all cases.
In China, capital gains that come from property sales (net of expenses and taxes) are taxed at a flat rate of 20%, and losses are not deductible. However, gains made from the sale of a sole private property are typically tax-exempt, as long as you have lived in that residence for five years or more.
China does not levy estate, inheritance, or gift taxes.
China’s consumption tax applies to luxury goods, such as:
The rate for this tax is computed based on the price of the goods.
The deed tax covers the purchase, sale, gifting, or exchange of ownership of land use rights and real properties. The rate ranges from 3%–5% of the amount involved in the exchange.
China taxes any gain from the disposal of properties with a land appreciation tax ranging from 30%–60%.
Certain goods, services, and properties are subject to a value-added tax (VAT) in China. For example:
A 3% educational surcharge is applied to the amount of China’s turnover taxes, such as the VAT and consumption tax.
While there is a US-China tax treaty, there is no US-China totalization agreement. And unfortunately, China requires foreign nationals to pay into their social security system. This means expats who live in China are at risk of double taxation in the form of paying into two social security programs while only receiving one benefit.
The rates vary depending on local rules and the jurisdiction in which you reside. Most jurisdictions will require that expats pay around 10%.
While Chinese nationals are taxed on their foreign earned income, foreign nationals are only taxed on their income earned from a Chinese source. That said, if a taxpayer has been a resident in China for more than five years, they will be required to pay taxes on their worldwide income.
Yes, US and China have a tax treaty in place. This helps protect US expats from double taxation by clearly specifying which country should be paid certain taxes and when those taxes are due.
Pro Tip: You will need to register with the tax authorities of China to take advantage of any of the benefits of the US-China tax treaty.
However, there is no US-China totalization agreement, so Americans living abroad in China may still be subject to a form of double taxation in that regard.
As a US expat living abroad in China, you’ll probably have to file multiple tax forms with both the Chinese government and Uncle Sam. Here are some of the most common examples.
Self-Declaration of Individual Income Tax
The primary tax form used in China is the Self-Declaration Form of Individual Income Tax. Expats who have to file their own taxes—instead of simply having their taxes withheld by their Chinese employer—will need to file and pay their taxes on a monthly basis. These taxes will be due on the 15th of each month.
Some expats will also need to file an annual reconciliation return. Tax residents must file their annual returns by June 30, while non-residents must file by January 15.
Extensions are almost never available, except in rare extenuating circumstances at the discretion of the tax authority.
IRS Form 1040: Individual Income Tax Return
Form 1040 is the normal US individual income tax return. Virtually every US citizen is required to file this form, no matter where they live.
The standard due date for Form 1040 is April 15, but in the case of expats, that deadline is automatically extended to June 15. (You can also request a further extension to October 15.)
IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA)
As an expat, if you own non-US financial assets above certain thresholds, you must file a FATCA report. The specific threshold for your finances will depend on your filing status and whether you qualify as a bona fide resident of China.
If you are required to file a FATCA report, attach it to your Form 1040 once you’ve completed it and file them together.
FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)
If you have a total of at least $10,000 in a non-US bank account, you’ll have to report it by filing FinCEN Form 114, better known as FBAR. (This applies whether the money is in a single account or spread out over multiple.)
You should file the FBAR electronically using the FinCEN BSA E-Filing System. The standard due date for the FBAR is April 15, but if you miss that deadline, there’s an automatic extension until October 15.
Because of the US-China tax treaty, most Americans living in China are already exempt from double taxation. However, the IRS also provides several other potential tax credits and deductions for expats, such as:
Most expats who use these tax credits can erase their US tax debt entirely.
We hope this guide has given you a better understanding of how China’s tax policies affect US expats. But if you still have questions, we can lend a hand.
At Greenback Expat Tax Services, we specialize in helping expats manage their tax obligations. Just reach out to us, and we’ll be happy to help you file your expat taxes accurately and on time.
Click here to get started on your expat taxes today.