The Ministry of Finance and the State Administration of Taxation have jointly issued the Circular no. 34 (2019) on “The Criteria for the Determination of the Length of Residence of Individuals having No Place of Abode in China”, in order to implement the revised Individual Income Tax Law and its Implementing Rules and to clarify the criteria for the calculation of the six-year period and the number of days spent in China by a non-domiciled individual.
The Article 1 of the Individual Income Tax Law provides that the individuals who have a domicile in China or the individuals who do not have a domicile in China but have resided in China for an aggregate of 183 days or more within a single tax year, shall be deemed as resident individuals. Income derived by resident individuals from inside and outside China shall be subject to individual income tax according to the provisions of this Law.
According to the Circular, only the days in which the individual has stayed in China for 24 hours are considered in the calculation; those days in which the individuals stayed less than 24 hours are not counted.
In addition, the Article 4 of the Implementing Rules of the Individual Income Tax Law provides that an individual who has no domicile in China but has resided in China for not more than six consecutive years in each of which he resided for 183 days or more accumulatively shall be exempted from individual income tax on his income derived outside the territory of China and paid by any overseas entity or individual; where an individual left China for more than 30 days on a single trip in any year during which he resided in China for 183 days or more accumulatively, the consecutive years in each of which he resided in China for 183 days or more accumulatively shall be counted again.
According to such provision, if the individual stays in China for accumulated 183 days during the tax year and if the accumulated number of days in the previous six years has exceeded 183 days, and there is no single absence of more than 30 days during a single tax year, he/she would be subjecte to China individual income tax on his/her worldwide income.
The Circular clarifies that the above six-year period shall be counted starting from the tax year 2019 (included).
The provisions included in the Circular will come into force from January 1, 2019.