Expat Taxes in China: A Guide for Americans Living Abroad
- Living as an Expat in China
- China at a Glance
- Taxes in China for US Expats
- Who Has to File Taxes in China?
- Who Qualifies as a Tax Resident in China?
- What Types of Taxation Does China Have?
- Does the US Have a Tax Treaty with China?
- Does the US Have a Totalization Agreement with China?
- What Tax Forms Do Americans Living in China Have to File?
- US Tax Forms for Expats
- What Tax Deductions Are Available for Expats Living in China?
- Navigating Tax Compliance for US Expats in China
Living as an Expat in China
China is one of the world’s most fascinating and dynamic countries, with a rich cultural heritage and a rapidly developing economy. As an expat in China, there are plenty of opportunities to explore this vibrant culture and take advantage of the country’s many modern amenities. From bustling cities like Beijing and Shanghai to picturesque countryside villages, there’s something for everyone in China.
However, living as an expat in China also comes with its own set of challenges. The language barrier, cultural differences, and complex bureaucracy can make everyday tasks seem daunting. It’s important to be prepared and informed to make the most of your time in China. In addition, understanding the local tax system is crucial to avoid any legal or financial issues while living abroad.
What are China’s taxes like for US expats? Let’s take a look.
China at a Glance
- Primary Tax Form for Residents: Form IIT-1
- Tax Year: January 1st to December 31st.
- Tax Deadline: Monthly returns are due on the 15th of the following month; annual returns are due by June 30 for those required to file
- Currency: Renminbi/Yuan (CNY)
- Population: 1.4 billion
- Number of US Expats: Around 75,000
- Capital City: Beijing
- Primary Language: Mandarin
- Tax Treaty: Yes
- Totalization Agreement: No
Taxes in China for US Expats
US expats living in China are subject to both US and Chinese taxes. China’s tax system is complex and may be challenging for expats to navigate. The country has a progressive tax system that includes individual income tax, value-added tax, and social security taxes.
US citizens living in China must report their worldwide income to the IRS and file their tax returns by the April deadline. They may also need to file an FBAR if they have foreign bank accounts that exceed certain thresholds. Additionally, expats may be eligible for foreign tax credits and exclusions to reduce their US tax liability.
It’s important for US expats in China to stay up-to-date with tax laws and regulations to avoid any penalties or fines.
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.
Who Has to File Taxes in China?
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:
- Earn more than 120,000 yuan (CNY) in a single year
- Have more than one income source
- Have any foreign-sourced income
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.
Who Qualifies as a Tax Resident 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:
- They have a domicile in China
- They spend at least 183 days in China in a given year, with or without a Chinese domicile
If you don’t meet these standards, you will typically be considered a non-resident for tax purposes.
What Types of Taxation Does China Have?
Categories of income subject to taxation in China include:
- Employment income
- Pay for labor or personal services
- Author’s income
- Business income
- Interest, dividends, and profit distribution
- Rental income
- Property transfer income
- Contingency income
Most forms of income are taxed monthly at progressive rates ranging from 3%–45%. To calculate the tax liability in these instances, 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 2022 are as follows.
2022 Chinese Income Tax Rate for Residents
|Annual Taxable Income||Rate Applicable to Income Level (%)|
|0 – 36,000||3%|
|36,000 – 144,000||10%|
|144,000 – 300,000||20%|
|300,000 – 420,000||25%|
|420,000 – 660,000||30%|
|660,000 – 960,000||35%|
|960,000 and above||45%|
2022 Chinese Income Tax Rate for Non-Residents
|Annual Taxable Income in CNY||Annual Taxable Income in CNY Rate Applicable to Income Level (%)|
|0 – 3,000||3%|
|3,000 – 12,000||10%|
|12,000 – 25,000||20%|
|25,000 – 35,000||25%|
|5,000 – 55,000||30%|
|55,000 – 80,000||35%|
|80,000 and above||45%|
Note that there is a monthly standard deduction for foreign nationals of RMB 5,000.
2022 Chinese Income Tax Rate for Businesses
|Annual Taxable Income in CNY||Rate Applicable to Income Level (%)|
|0 – 30,000||5%|
|00 – 90,000||10%|
|90,000 – 300,000||20%|
|300,000 – 500,000||30%|
|500,000 and above||35%|
Filing a joint return isn’t allowed in China. Spouses are assessed separately in all cases.
Capital Gains Tax in China
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.
Land Appreciation Tax
China taxes any gain from the disposal of properties with a land appreciation tax ranging from 30%–60%.
Value-Added Tax (VAT)
Certain goods, services, and properties are subject to a value-added tax (VAT) in China. For example:
- Financial and consumer services are taxed at 6%
- Necessities like water and gas, transportation, construction services, telecommunication services, and postal services are taxed at 9%
- Sales and importation of goods, repairs, and leasing services are all taxed at 13%
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%.
When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.
Is Foreign Income Taxed Within China?
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.
Does the US Have a Tax Treaty with China?
Yes, the US has a tax treaty with China. The tax treaty between the two countries was signed in 1984 and went into effect in 1987. The purpose of the treaty is to eliminate double taxation for individuals and businesses that earn income in both countries.
The treaty covers various types of income, including dividends, interest, royalties, and capital gains. It also includes provisions for resolving disputes between the tax authorities of the two countries and for exchanging information to prevent tax evasion.
However, it’s important to note that the tax treaty only applies to federal taxes and does not necessarily cover state and local taxes. Taxpayers who earn income in both countries should consult with a tax professional to ensure they are complying with all applicable tax laws and taking advantage of any available tax benefits under the treaty.
Does the US Have a Totalization Agreement with China?
No, the US does not currently have a Totalization agreement with China. Totalization agreements, also known as Social Security agreements, are bilateral agreements between the US and other countries that eliminate dual Social Security taxation for workers who earn income in both countries.
While the US has Totalization agreements with several other countries, including Australia, Canada, and the United Kingdom, it does not have one with China. This means that US workers employed in China and Chinese workers employed in the US may be subject to dual Social Security taxation.
What Tax Forms Do Americans Living in China Have to File?
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.
Chinese Tax Forms for Expats
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.
US Tax Forms for Expats
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.
Typically, taxpayers must file Form 1040 by April 15th (April 18th, 2023). However, the IRS automatically extends expats’ due date to June 15th, 2023. Taxpayers can also request a further extension to October 16th, 2023.
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.
What Tax Deductions Are Available for Expats Living in China?
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:
- Foreign Earned Income Exclusion
- Foreign Tax Credit
- Foreign Housing Exclusion (or Deduction)
Most expats who use these tax credits can erase their US tax debt entirely.
Navigating Tax Compliance for US Expats in China
If you still have questions about how China’s tax policies affect US expats, we are here to help. We hope this guide has provided you with a better understanding, but our team of experts is available to offer further assistance and support.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.