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- Human Resources and Payroll in China 2016-2017 (5th Edition)
How is time in China counted?
Residing in China for one calendar year means that, within the year, temporary absences from the
country are less than 30 days continuously or 90 days altogether. When counting the number of
days in China for income tax calculation purposes, the day on which one enters into or exits China
is also included.
Individuals who reside in China for more than five years are taxed on their worldwide income,
meaning both income sources within and outside China. However, if an individual resides in China
for less than one year after having resided in China for five consecutive years, the individual’s tax
status is reset, meaning that only the individual’s income sourced within China will be subject to
individual income tax.
Taxation of senior management salaries
The “90 (183) days rule” does not apply if the employee in question holds a senior management
position in China. Their director’s fees or salaries paid by domestic employers, regardless of whether
they are China or non-China sourced, are subject to IIT from the employee’s first day in China.
In general, senior management positions include:
• Director.
• Chief executive officer.
• General manager.
• Vice president.
• Chief representative.
• Individuals holding positions in specific professional fields, such as chief engineer or chief financial
officer.
• Certain individuals not holding titles such as manager but carrying similar responsibilities or having
a great influence on business operations or decisions.
Tax Planning
An optimal compensation package allows an employee to take home the most value while staying
within the parameters set by China’s tax laws. This can be achieved by careful tax planning: making
use of a combination of permitted allowances, annual bonuses, stock options and other strategies
that allows the employee to minimize their tax burden.
Tax planning should always be based on the individual’s personal circumstances. To give a better
understanding of the options available, we provide some specific examples below.