I'm planning to relocate to Shanghai at the end of this year. Would appreciate if anyone knows the legal answers to the following (understood that enforcement may be another issue):

1) Does China tax residents on world-wide (including investment) income?
2) If yes, at what % rate is investment income taxed?
3) Does China recognize the tax deferred or tax free nature of certain US accounts (retirement college planning, etc) Or does China tax income
from accounts such as IRAs, 529 plans, etc.

Or would appreciate if anyone knows where I can go to find the answers to these (book, website, etc).

Thank you, Darwin

The taxation depends on where you invest. Most countries will say yes, but some of the investment companies here invest in countries where there is now way for a government to get information about your accounts.

China will tax all income you have overseas, this includes interest and even if you rent out your house. But remember you have to tell them yourself as very few have a "checkup"

Thanks Horsemandk. I understand that enforcement of the law is one issue, and that China may have no way at this time of knowing what investments a person has outside of China.

Still, it's good to be informed of what the Chinese tax law actually says, whether or not it's currently enforced. Is there a website or other reference on Chinese tax code (in English) that you could point me to?

Interestingly, taxing residents on world-wide income isn't universal. I understand that Thailand will tax residents (including its citizens) on overseas investment income only if the earnings are brought into Thailand in the year in which they are earned.

Cheers, Darwin

Many thanks HorsemandK. That link has what I was looking for.
Cheers, Darwin

I went to a forum on tax issues and the advice they gave is that as long as you do not reside in China for 5 years continuous 9starting from 2004) then you are not subject to worldwide taxation by China. KPMG suggected that at four and a half years you go out of China for 32 continuous days. The actual requirement is 30 continuous days but they say you must not count the day you leave or the day you return.

Darwin,

I work for an offshore investment company in shanghai, just happened to notice your msg.
-you have to pay income tax if you are getting paid to a chinese bank account.
-No, there is no global taxation in China, but if signed a contract with any company in china (Chinese or non-chinese as long as it is in china and your visa is issued by them) you should have a minimum base salary paid to a chinese account where u have to pay taxes on that.. that can be arranged with your company with 4000~5000RMB where u pay a very low taxes on that and get paid the rest of your salary to an offshore account based in a tax free haven.

Regarding offshore investments (Retirement or educational saving plans..etc), its totally a different issue. can be all done offshore and save your self 40% taxes on what you pay back home.

Any advise you may need, PM me or email me at moe.e@austenmorris.com

Cheers
Moe

Edd....
Are you suggesting that darwink use off-shore accounts to hide income from US taxes or Chinese taxes?

With all due respect, If US..you are advocating a path that is very much illegal.

Darwink...tread carefully with off-shore accounts. The IRS is getting very serious about tracking these.
Even if you successfully hide money offshore...getting it back into the US when needed can leave a trail back to the origin. And a very nasty tax bill.

As for Chinese taxation of US accounts...chinamonty is correct.
Less than 5 years residence, all you will be liable for in terms of Chinese taxes is income tax. Plus, of course, your US tax bill for the same income. sucks.

Edd wrote:
"Regarding offshore investments (Retirement or educational saving plans..etc), its totally a different issue. can be all done offshore and save your self 40% taxes on what you pay back home".

http://www.irs.gov/businesses/small/art ... 68,00.html

Long Article.
Salient points

The Abusive Tax Scheme Program is concerned about taxpayers who exploit secrecy laws of offshore jurisdictions in an attempt to conceal assets and income subject to tax by the United States.

Some different types of entities and schemes being used in Abusive Offshore Tax Schemes include:


1. Foreign trusts
2. Foreign corporations
3. Foreign (offshore) partnerships, LLCs and LLPs
4. International Business Companies (IBCs)
5. Offshore private annuities
6. Private banking (U.S. and offshore)
7. Personal investment companies
8. Captive insurance companies
9. Offshore bank accounts and credit cards
10. Related-party loans


Abusive schemes usually create structures that make it appear a nonresident alien or foreign entity is the owner of assets and income, when in fact and substance, true ownership remains with a U.S. taxpayer.
.
.
.
.
Conclusion

Citizens and residents of the United States are taxed on their worldwide income. To help prevent the use of offshore entities for tax evasion or deferral, Congress has enacted several specific provisions in the Internal Revenue Code. Some provisions trigger recognition of gains that would otherwise be deferred. Others deny deferral of tax on income moved offshore.

Though promoters of offshore schemes often advance technical arguments, which purport to show that their scheme is legal, the intent of Congress remains clear. U.S. taxpayers are not to be allowed to evade taxes by shifting their own liability to some foreign entity.

horsemandk wrote:China will tax all income you have overseas, this includes interest and even if you rent out your house. But remember you have to tell them yourself as very few have a "checkup"

Not true at all.

For the typical expat that comes to China for a couple of years to work, China will not lay claim to taxes based on your out-of-country assets / income.

Edd wrote:No, there is no global taxation in China, ...

There most certainly is. Chinese citizens, permanent residents and this with stays at or over a certain length are subject to worldwide taxation.

p1atl10 wrote:Less than 5 years residence, all you will be liable for in terms of Chinese taxes is income tax. Plus, of course, your US tax bill for the same income. sucks.

There are provisions to avoid double taxation by the IRS and the Chinese tax authorities. If you pay tax on your income here both in China and in the US, you need to fire your tax advisor.