At first glance, it seems that all money received (it does not matter whether to a card, to a Wechat wallet or by bank transfer) is one and the same. But, as it turns out, it is not quite so. In this article, we will talk about their difference, best ways to receive them and the consequences that such receipt may entail.
We are now considering solely the income of individuals. Should we delve into economics, it will take us too far aside – we will not dwell on profit, income, revenue, turnover, and so on. This article deals exclusively with 个人所得 – personal income of an individual.
Still, it is worth making a small remark to consider what “income” is. At first glance, the question seems stupid – this is money received by a person. But let’s imagine the following situation:
Tom borrowed 1,000 yuan from Dick. In 5 days, Tom received a salary and gave Dick 1,010 yuan. And besides that, he treated Dick to a lunch as a thank you. At what point and who received income here?
Tom’s income was only his salary. He borrowed 1000 yuan from Dick and returned it – although the money was received, Tom did not get richer. Dick earned an income of 10 yuan. And the lunch brought income to the restaurant. That is, “income” is not just money received, it is money received that led to enrichment. The same applies to the accountable funds issued to Dick – although he received money from his company for representation expenses, this did not lead to his enrichment and his receipt of accountable funds is not considered income. This is all, of course, very simplified, but it gives you the general idea.
There is also the concept of “tax residency”. It has nothing to do with citizenship, residence permits and stay permits. To be more precise, it does, but in an extremely indirect way. Tax resident is defined differently in the legislation of various countries, but in general it is always the one who pays taxes to a particular country under certain conditions. For instance, in Russia this is a person who stays in the territory of the Russian Federation for more than 183 days a year. Here, it is enough for a person just to be present within the country – unlike, for example, an ordinary “residence”, which implies that the person within the territory of the Russian Federation has a Russian temporary residence permit or residence permit (although if s/he arrived from a visa-free country and was in the Russian Federation for 60 days under a visa-free agreement, on the 61st day received a TRP and left on the 150th day, it is considered that s/he was present in the territory of the Russian Federation for 150 days, and resided in the territory of the Russian Federation for 90 days). As far as personal income tax for income received in the Russian Federation is concerned, a tax resident of the Russian Federation pays 13%, while a non-resident – 30%.
In China, everything is relatively similar, but here the concept of a tax resident includes two stages:
1) a tax resident of the PRC is a foreign citizen residing (居住) on the territory of the PRC for at least 183 days a year for one calendar year. The concept of “residence” implies the same thing as in the Russian Federation – it must be residence on the basis of a Residence Permit (居留证).
If you look at any visa (specifically a visa), then you will see the field 入境后可停留 (the allowed period of stay after entry). This is an extremely important point that a lot of people miss.
停留≠居留. Stay is not equal to residence. Even if you have stayed in the PRC on a business visa for a whole year, leaving only for visa-runs for 4 days a year, all the same – you have not resided in the PRC for a single day and the concept of tax residence does not apply to you.
That is why, by the way, when issuing a humanitarian residence permit (where the field 居留事由 is filled with 停留), it is a humanitarian residence permit, not a humanitarian visa. But this is too far off the topic.
2) a tax resident of the PRC after 6 years of continuous residence in the PRC with a maximum period of travel abroad no more than 30 days during each calendar year is also obliged to pay personal income tax in the PRC from income received abroad.
More complex cases are also possible – Harry, for example, receives dividends from investments in an American startup, living in the PRC, but not being its tax resident. At the same time, when receiving income, he wants to pay personal income tax in Russia at a rate of 13% for residents and not pay anything on the territory of the PRC, since an agreement has been concluded between the PRC and Russia on the avoidance of double taxation. It is possible, but this is very special case that requires individual consideration.
Now we move on to the crux of the matter
Since we cannot embrace the immensity, in this article we consider only the following category of foreigners in China who receive income:
The first and most significant source of income for a foreigner is salary, or 薪资. Let’s deal with it first.
The established name for this type of income is 工资、薪金所得. These are not the same, and contrary to popular belief, 工资 and 薪资 are different things. 工资 is the direct “labor remuneration” – i.e. direct payments for the performance of direct and clearly defined work duties.
A more correct name would be 工资 – 劳务报酬（most often – 劳动报酬, we’ll talk about the difference later), which means work remuneration.
薪资 encompasses the aforementioned 工资, but also includes:
In other words, the first type of income is purely income from work. The main criterion for such income is that it comes from being in an employment relationship. It means that it is always payments from a legal entity to an individual, characterized by regularity and continuity. Naturally, the receipt of such income in the territory of the PRC by a foreigner without a work permit is illegal and punishable by law. Both the receipt of income and the very fact of illegal employment.
The tax agent (扣缴义务人) in such a relationship is always the employer, who deducts personal income tax from salary.
The second, no less important type of income is 劳务报酬. Now is the time to talk about the difference between 劳动报酬 and 劳务报酬. The first point is direct labour relations, which we considered in part 1. The second is irregular and / or one-time labour relations, which are characterized by the performance of a one-time or specifically designated work and do not imply continuation. For example, a high-profile scholar invited to give a lecture. Or a maintenance technician who came home to fix the air conditioner. An so on.
Such income is subject to both personal income tax for the recipient of the income and VAT for the service provider. Since an individual cannot pay VAT (as well as issue 发票), when receiving such income, the service provider must contact the tax office at the place of service and 代开发票 (this is a purely Chinese procedure, which implies that the individual informs the tax office about the receipt of income to them, as an individual, and the tax authority on behalf of this individual forms 发票 and acts as a 代表-representative).
This type of income does not require the possession of a work permit, many universities have posted on their websites methods for calculating personal income tax and VAT for such labour relations (which suggests that such income is not something exceptional and all accounting departments are aware of the methods of accounting ). Essentially, if you are legally present in the PRC (regardless of the type of visa or residence permit), you can receive such income on the premise of timely declaring it and paying corresponding taxes. But here there is a small conflict in the legislation.
The Immigration Service considers this illegal work.
…（二）超出工作许可限定范围在中国境内工作的…
But in fact there is no collision here. As usual – you need to be guided not only by the letter of the law, but also by common sense. Any police officer will figure out the difference between a scholar who concurrently delivers a course of lectures in Fudan and an chest-thumping English teacher who declares that every lesson is just a one-time relationship devoid of long-term nature. So if you sometimes provide such services (freelance or by agreement) – to legalize income you need:
Do not forget that whereas in the first case only the employer acts as a tax agent, in the second case it is only you yourself. You and only you bear full responsibility before the law for late filing of the declaration and concealing certain amounts.
Do not be afraid of this. In my practice, the Chinese tax authority is extremely loyal to the fact that a foreigner wants to be legal and meets halfway in everything. Well, if we are talking about small amounts – to give the state a little % and sleep peacefully is much more pleasant. Tax optimization with such amounts is a waste of time.
Well, let me repeat once again – the immigration service also perfectly understands the difference between an English teacher and an invited one-time consultant.
The third type of income is personal income. This can be, for example, renting out your own apartment. To put it another way, this is something that directly concerns a person without the participation of an employer and without any labour relations at all. All this is subject to the same rules as in part 2. However, in some aspects it will be more complicated – due to the fact that there are many more taxes. But there is only one general principle – there must be a main document confirming income (on the example of an apartment – a lease agreement), 发票 from a tax authority and a declaration, on the basis of which the total amount to be paid will be calculated for you. There are as many as 8 types of taxes for the lease of premises by individuals:
1）营业税 – turnover tax, 3%
2）城建税 – urban construction tax. Equal to 1% / 5% / 7% of the amount of the turnover tax
3）教育费附加 – educational surtax. Equal to 3% of the amount of the turnover tax. Foreigners don’t pay it
4）地方教育附加 – local educational surtax. 1% of the amount of the turnover tax
5）土地使用税 – land use tax – tax per square meter divided by 12 months and multiplied by the rental amount
6）印花税 – stamp duty. 0.1% of the monthly rent
7）房产税 – property tax
8）个人税 – personal income tax
The calculation above is provided purely for informational purposes. Different rates apply for residential and non-residential property, the same goes for stamp duty, land use tax and property tax. Land use tax ranges from tenths of a yuan per square meter to tens of thousands yuan. Various benefits and preferences can be established. The administration of a certain district can completely abolish taxes in order to stimulate development (or vice versa – due to the extreme overpopulation of the district, raise them to a protective scale). In any case, you do not need it (and if you need it, then only for informational purposes). It is important to remember that all that is required from the recipient of income is not to forget about the contract and honestly indicate the amount received in the application for paying taxes.
While in the first two parts it was important to bear in mind the intricacies associated with labour relations, here it is wise to remember that the borderline between personal income and entrepreneurial activity is extremely thin. Everyone understands that renting out their personal apartment is not an entrepreneurial activity. As well as putting your car in a rental service. But the number of cars allowed for rent is already a threshold determined individually and not subject to generalization.
It is clear that if citizen A puts their personal car in 首汽约车 (car rental service) for rent, this is not entrepreneurship. It is clear that if they hand over a hundred cars, then this is a clear-cut entrepreneur. But where is the border between 1 and 100 – this is individual.
And finally, a very common option is withdrawing money from your foreign card. Or receiving money transfers. It is important to remember that the transfer of money from yourself to yourself is not income and is not subject to taxation. Therefore, it is highly recommended:
Well, given the ever-increasing control over cash flows, the widespread rejection of cash, the introduction of double taxation avoidance systems, the exchange of data between tax authorities of different countries, and so on – it is highly recommended to take care of the legalization of income in advance, before someone knocks on your door.