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Work in Shanghai, getting paid in US...tax implications ?

Shanghai Expat Forum Index » Hot Topics Forums » Visas, Taxes, and Legalities

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Soop

Newbie

Joined: May 12, 2008
Posts: 2

Status: Offline

Posted: May 12, 2008 - 07:27 PM
Post subject: Work in Shanghai, getting paid in US...tax implications ?

Hello,

Looks like I am going to be relocating to Shanghai soon on a rotation with my current US employer. The plan is for me to remain on the US payroll so I keep my US benefits, continue to get paid via direct deposit in my US checking account, etc.

Anyone know the tax implications of this approach (or have good links on this)? Will I need to pay taxes in both countries?

Will likely be a 1-year assignment, possibly longer.

Thanks!

yu888
Board Deity

Joined: Jan 25, 2003
Posts: 18042
Location: ZhongShanParkArea SH

Posted: May 12, 2008 - 10:57 PM

If you are here on a work permit and residence permit, which will be required for such an assignment, you will be subject to China income taxes as well as US taxes. Talk to your accountant to tax advisor for most relevant tax info.

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underh20
Shanghai Royalty

Joined: Sep 27, 2006
Posts: 9900
Location: EOA Seminar

Posted: May 13, 2008 - 07:56 AM
Post subject: Re: Work in Shanghai, getting paid in US...tax implications

Soop wrote:

You will not be subject to double taxation.

China and the US have a tax treaty. Any taxes paid in China can be subtracted from your NET tax liability to the IRS.

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yutaofeng

Squeeker

Joined: Nov 20, 2003
Posts: 16

Status: Offline

Posted: May 13, 2008 - 12:31 PM

I've been in the same situation for 3+ years now. My company provides "tax equalization". It took me a long while to actually understand the details and complications. In short, if you use tax equalization, your "net" tax liability will be the same as if you still live & work in the US. Your company pays your foreign (China) taxes on your behalf, while you pay "hypo tax" to your company which is equal to the amount of taxes if you were still in the US. The China tax rate is up to 45%. So typically your company pays more than your "hypo tax". There are many complications. If you are not a tax expert, then you better have your company hire a US tax consultant, as well as a China tax consultant. Good luck

PhatAV8r

Raver

Joined: May 31, 2003
Posts: 384
Location: Qingpu District, SHANGHAI
Status: Offline

Posted: May 13, 2008 - 01:40 PM

Exactly, YOU are liable for paying the Chinese taxes, and if you earn more than 120,000 RMB per year, will be required to also file a Chinese tax return as part of the process. There is now an annual review when your work permit is renewed to ensure this is done, if you don't file or pay your tax, your work permit is subject to cancellation (and your visa).

Keep in mind that for the rest of 2008, if you arrive and begin work after July 3, you owe no Chinese tax because you don't meet the 183 day rule. If you return home before July 1st in 2009, the same rule applies so your tax status is unaffected.

Your company should however include 'tax equalization' in your assignment contract. Be careful and don't take their word for it. I know from personal experience. Sometimes a US boss doesn't understand that the liability can be $40k to 100k per year for tax eq. and will try to slough the responsibility on the employee.

val24601

Newbie

Joined: Apr 13, 2008
Posts: 3
Location: Shanghai
Status: Offline

Posted: May 22, 2008 - 02:31 AM

How does the '183 day rule' work? Does it mean if I spend fewer than 183 days in China in one calendar year, I won't have to pay Chinese taxes?
How are the days counted? For example, if I arrive on 5/22 and depart on 5/25, does it count as 3 or 4 days (inclusive of arrival and departure dates)?
Is there a website specifically discussing such issues?
Thanks.

p1atl10

Board Royalty

Joined: Mar 18, 2005
Posts: 6293
Location: Shanghai
Status: Offline

Posted: May 22, 2008 - 07:38 AM

It is actually 90 days absent from China, not including the day you leave or arrive...
No China Tax.

So your depart china 22, arrive back 25 would be 2 days towards the 90

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underh20
Shanghai Royalty

Joined: Sep 27, 2006
Posts: 9900
Location: EOA Seminar

Posted: May 22, 2008 - 11:57 PM

PhatAV8r wrote:

... There is now an annual review when your work permit is renewed to ensure this is done, if you don't file or pay your tax, your work permit is subject to cancellation (and your visa).

Not yet there isn't.

Though they may someday do this, the fact is that it is not happening now.

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jasonk

Lurker

Joined: Mar 06, 2008
Posts: 20

Status: Offline

Posted: June 11, 2008 - 09:57 AM
Post subject: Re: Work in Shanghai, getting paid in US...tax implications

underh20 wrote:

Soop wrote:

You will not be subject to double taxation.

China and the US have a tax treaty. Any taxes paid in China can be subtracted from your NET tax liability to the IRS.

I am a US citizen considering the Consultancy Service WOFE route. Does the US-China tax treaty extend to WOFE's?

Thanks.