Income Tax (Individual)

Rep office of foreign enterprises are usually solely responsible for the corporation's business contacts with customers, activities or functions are unique; the Chief Officer is generally expatriates, but it may have other expatriates to work; the working staff of Rep Office is subject to personal income tax. How to determine? There are some special provisions in tax law on this aspect.

The Ministry of Finance, State Administration of Taxation on the Implementation of Certain Provisions of a Tax Treaty Interpretation of Notice" ( ( 86 ) Tax Association Article. 015 ) and the State Administration of Taxation in 1994 issued a "No Domicile in China 's Personal Income Tax Liability to Obtain Wage and Salary Issues Notice" (Guo Shui Fa [1994] No. 148) the documents, in which, it consistently states that:   expatriate works in rep office in China or other institutions where he should get proceeds from the institution or the enterprise during his tenure of service, the income obtained shall be considered to be issued by the institution, regardless of whether it is by the domestic or the foreign institution.   Therefore, expatriates who work in the local territory, the respedtive office or agency shall bear the domestic part of the income in the country and assume responsibility as taxpayer.

Some taxpayers assume that domestic institutions need not to pay wages to foreign workers and it should be paid by the foreign affiliates in the country of residence.   If the expatriate works in local territory for not exceeding 183 days, he can be relieved from personal income tax.  But for Chief Rep Officer, the interpretation under the "Ministry of Finance, State Administration of Taxation on Implementation of Certain Provisions of a Tax Treaty of Notice" ( ( 86 ) Tax Association Article. 015 ) it does not match the documentation's requirements.

A - Hold Domestic and Foreign positions simultaneously : -

If the foreign expatriate held positions in domestic and foreign companies at the same time, their wages and salaries shall be in a reasonable portion of the respective domestic and foreign parts, otherwise the tax authority will assess its domestic revenues.

It is advised that under the expatriate labor contract, it should expressly state the income portion from local territory.   Otherwise, the tax authorities will consider a relatively higher domestic amount and the tax burden will be heavier.

Within a tax year, during his tenure of service, if he holds residence for not exceeding 183 days in the local territory, the expatriate has to bear the income portion of the domestic part, and for the income portion from the foreign companies, no tax liability.

B – Held positions simultaneously in different Rep Offices in the territory : -

If the expatriates serve as Chief Representative for different agencies in China, he should also be classified, according to the above principles that  the income and foreign income , that is, according to whether their incomes are divided from different offices.  As for how to divide is not clearly defined under the State Administration of Taxation.   According to "Individual Income Tax Return Measures ( Trial ) " ( Guo Shui Fa [ 2006 ] No. 162 ) it provides that if the taxpayer obtains two or, two or more sources of wages and salary incomes , and to select which the fixed unit of local respective tax authorities , so it will not affect the wages and salaries division in anyway the personal income tax calculated.

But the division of staff's salaries in Rep office are affected by the sales tax and income tax under calculations, especially for conversion the appropriation revenue from office. You need to pay special attention to the relevant local tax authorities about the tax treatment and / or requirements.



  • i. "Ministry of Finance , State Administration of Taxation on Implementation of Certain Provisions of a Tax Treaty Interpretation of Notice" ( ( 86 ) Article 015 )  and the China signed  tax treaty with other country, for those  residents who assigned to serve as the permanent representative of generation of an enterprise  staff , it provides that if they are working in China and have a fixed permanent position, their wages and salaries paid regardless of the source , it will apply regardless the exemption of station for not more than 183 days.
  • ii. State Administration of Taxation in 1994 issued a " No domicile in China to Obtain Wage and Salary Income Individuals Concerning the Taxpayer's Question Notice " ( Guo Shui Fa [ 1994 ] No. 148 ) the document states: all enterprises in China where there are foreign personnel there, or the institutions are using approved methods for calculating taxable profits about the corporate income tax revenues, whether without or without the corporate income tax , the foreign one  are actually made in China, the wages and salaries during the work , whether or not it is  the Chinese domestic enterprises or institutions portion in the accounting books.

These are records, it shall be deemed to be paid by the Chinese domestic enterprises, the portion of the Chinese domestic institutions' salary.