IIT (Individual Income Tax) Planning for Expatriates in China

'What is the law regarding the taxation on income of expats in
China?' 'How is IIT of expats declared in Shanghai?''How to calculate
my IIT to avoid repeated levy by my own country?'-These questions are
usually asked by my clients,and Legal tax avoidance is a forever hot
topic.China's individual income tax [IIT] rate, from 5% to 45%, is in
the upper level of the world. Due to the high costs and complex rules,
you do have the demand and opportunity to save your individual income
tax in a legal and proper way. An anticipatory and skillful tax plan
can help!-Am I liable to pay individual income tax?Identification
determines your tax liabilities. It is not always high earners who pay
the highest marginal rates of taxes on income. There are different tax
rules, rates, and exemptions for different people. Even for persons
who stay in China with same purpose, that is, with same kind of visa,
different tax treatment may occur due to different certificates they
hold.Example of Practice: a man was recruited by a Chinese University
as an English Teacher, this person can get Expert License (Culture &
Education), with which he apply for the working visa and resident
permit. Compared with those who hired by company, like WFOE, JV, or
RO, even they have the same purpose to WORK here with the same kind of
"Z" visa, the second person cannot be treated tax free for his oversea
income due to the lack of 'Expert License'.-Can I save tax by
controlling the days spent in China? Good controls of resident days
help avoid huge tax burden. Under China Tax Treaty, different
exemptions apply to different accumulative days of presence in the PRC
in a calendar year. Less than 90/183 physical days, over 90/183 days
but not exceed one year, and even one year to five, can enjoy tax
benefits respectively.Technical tips: Avoid being taxed on worldwide
income by breaking the 5 year chain. Leaving China for 31 days
consecutively or 91 days cumulatively by the 5th year will help.
Furthermore, leaving China for 31 days consecutively or 91 days
cumulatively in the 6th year help you restart the 5 year clock.-Which
kinds of income are taxable? Rearrange the nature of your income to
make full use of the exempted categories. Temporarily exempted
expenses include the house allowances, meal allowances, removal
compensation, laundry allowance obtained for foreigners in non-cash
form or in reimbursement, the relative visit allowance, language
training allowance, children education allowance and the dividends and
bonus obtained from FIEs.Technical tips: Never getting cash income to
pay your personal living expenses. Reimbursements upon actual figures
help you to maximize the exempted expenses. Pay living expenses after
the receipt of cash income bring loss to you compared with submitting
the actual invoices to employer and get the net amount.-International
Tax Planning with Tax Protection & Equalization Policies.Due to the
worldwide different tax rates, in order to ensure that the expatriate
assignment is "tax neutral", many companies pay taxes that exceed the
expatriate's hypothetical tax liability. Companies also implement tax
equalization policies so that expatriate employees are treated fairly
and consistently throughout the world.Example of Practice: an UK
expatriate in China is treated the same as work in his home town and
in US although the tax laws in these countries are vastly different.
After the deduction of his oversea hypo tax, the person enjoys the
less tax benefits, or the employer affords the extra cost during his
stay in China.