China has rolled out some significant tax rule changes that are now in effect as of 1 January 2019. One such law impacts a companies' social insurance contributions. Employers in China will need to ensure that their minimum social insurance contributions are met. With these law changes, the Chinese taxing authorities have also upgraded their technology capabilities meaning any shortcomings in social insurance contributions will be more easily spotted and enforced.
There are a few steps that the employer needs to ensure is complete, such as registering and paying the social insurance for their employees in company-cities. If companies do not meet or are unable to meet the regulation, they may find severe penalties starting this year. Organisations who have offices in China will need to make sure their human resources are up to date with the new changes and understand on how this may impact their expatriates in China in order to avoid any penalties.
Additionally, there will be some revised residency rules for foreign workers in China. These changes could negatively impact companies that have foreign employees working in China, likely increasing tax costs. The new rule would consider those in China for 183 days during the year to be treated as tax residents, a rule that exists for many other countries, including the U.S. These employees would be taxed on worldwide income, not just their income earned while in China.
Per Pete Scott from the tax counsel at Worldwide ERC®
"Currently, foreign nationals working in China are taxed in China only on their Chinese income, unless they are residents of China for at least five years. After five years, such individuals are taxed on their worldwide income. However, the law requires residency for five “full” years before the tax on worldwide income takes effect. An absence for over 30 days on a single trip during the year, or more than 90 days over multiple trips during the tax year, will result in the individual not being treated as a resident for that year. Wise expatriates in China take advantage of these exclusions in their fifth or sixth years in China."
Heading into the new year, those with foreign workers in China should connect with their expatriate tax partners and consider the possible impact for the upcoming year. For more details and considerations, read this tax insight from EY and this related tax alert from Global Tax Network (GTN).
New laws in China impacting business and trade will come into effect on January 1, 2019. They range from tax reform to international tariff agreements. Many of these developments were announced earlier in 2018 but were either implemented in phases or will come into force at the start of the new year. To ensure your business stays compliant in 2019, this article lists out the most important regulatory changes that you should pay attention to.