Income from employment is subject to IIT. In general, taxable income from employment includes wages and salaries, bonuses, commissions, allowances and subsidies, taxes paid by the employer, stock options and any other income related to the individual’s position or employment.
Where a non-mainland-China domiciled individual working in the People’s Republic of China (PRC) receives wages and salaries from a foreign employer and the payment is not ultimately borne by an establishment in mainland China, his IIT exposure depends on the length of residence in the PRC in a year as follows:
- No more than 90 days – exempt from IIT
- More than 90 days but less than six years – mainland-China-source income during the period of residence in mainland China is subject to IIT
- Over six years – from the seventh year, worldwide income is subject to IIT.
In addition, bilateral tax treaties in some cases provide an additional source of rules for interpreting the term ‘residence’. For example, under the China-US double tax treaty, an individual will generally be subject to IIT only if their stay in mainland China is more than 183 days in a calendar year. Where there is a conflict between the IIT law and the term of a treaty, the treaty will prevail over the IIT law.
These rules do not apply to senior management personnel and representatives of representative offices, who are subject to IIT on income derived from, or deemed to be borne by, the Chinese establishment even if their stay in China does not exceed 90/183 days in a calendar year. Besides, there are specific rulings for more complicated cases like two sources of income and concurrent duties within and outside of China.
The interpretation of the regulations and the local practices may vary from location to location.