Chinese living abroad will now have to pay taxes back home. This comes as a rude awakening to the numerous expatriates living and working in countries around the world.

The new changes in the Chinese tax system will first apply to expats in Hong Kong, though mainland Chinese workers in Macau and Singapore have also reportedly been asked to gear up for the same obligations to pay taxes on their income.

A directive was sent out to Chinese citizens in Hong Kong by State Owned Enterprises (SOE) to declare their 2019 salaries and make up for any shortfall caused by the different tax rates in the two regions.

The specific statistics on expats are not yet available though the Chinese state media have estimated that there are about 60 million Chinese living overseas. This order from the State Tax Administration is seen as the first step in extending the tax net to the millions of Chinese working and studying abroad.

Mainland Chinese employees in Hong Kong have expressed dissatisfaction on the matter because they have only been paying a maximum of 15 percent of their salaries in taxes.

Now, with the latest reform they have a lot of arrears to pay caused by the huge difference in taxation rates between the two jurisdictions.

These new reforms coincide with the first tax reporting season since China tightened its individual tax law in January 2019. China, which charges taxes of as high as 45 percent, revised its income tax rules in 2019 to enable authorities to start collecting taxes from its citizens worldwide in a similar fashion as the US does with Americans living abroad.

However, details on the new tax reforms were only disclosed this year sidetracking expatriates.

Chinese Subject to Income Tax

This reform will be imposed on worldwide workers referred to as Chinese residents.

According to Chinese laws, the definition of a tax-resident is “a China domiciled-individual” who is an individual who habitually resides in China because of their legal residency status, family or economic ties or anyone who spends at least 183 days in a tax year in the country.

Chinese citizens living abroad for the purposes of studying, working, travelling or visiting family and who would return to China when those purposes are completed are also deemed “China –domiciled individuals”. This was stated by the tax authority in 2019.

As Hong Kong prepares to enforce the new tax system, Chinese nationals abroad should brace themselves for the same changes.

Despite arguments from economists that Chinese nationals abroad play a vital role in promoting Chinese exports and use fewer government services like healthcare, this will not stop them from feeling the pinch of this tax. This reform will cause an upheaval in China as this tax will negatively impact Chinese workers abroad, considered one of the largest expat communities in the world.

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Writer: Joy Edumu

#wealthmanagement #hnwis #chinesehnwis #chineseexpats #wealthplanning #taxplanning

REFERENCES

Bloomberg – China Starts Taxing its Global Citizens for the First Time

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