Since the implementation of the new China Individual Income Tax Law in 2019, this year marks the final year of the “Six-Year Rule.” Will foreign employees face tax obligations on their global income?
Regarding the Policy Definition of “Accumulated 183 Days in a Year and Continuous Six Years of Residence”
According to the Announcement on the Criteria for Determining the Residency Period of Individuals without Domicile in China (Announcement No. 34 of 2019 of the Ministry of Finance and the State Administration of Taxation), non-domiciled individuals who have resided in China for a cumulative 183 days in a tax year shall pay individual income tax on their global income for that tax year if they have resided in China for at least 183 days in each of the “preceding six years” and have not stayed outside China for more than 30 days in any one year. If any year in the “preceding six years” does not meet the above conditions, income sourced from outside China and paid by overseas entities or individuals in that tax year is exempt from individual income tax. The term “preceding six years” refers to the six consecutive years from the year before the tax year to six years prior, with the starting year of the “preceding six years” being calculated from 2019 (inclusive).
It is important to note two points:
1. All residence records in China before 2019 for non-domiciled individuals are cleared and not considered in the calculation. For non-domiciled individuals, 2019 is the first year of the calculation for the full six years, which starts from 2019 when determining whether the full six years have elapsed, without consideration of previous residence records.
2. Starting from 2019, if an individual stays outside China for more than 30 days in any tax year in which they have resided in China for 183 days, the consecutive calculation rule is broken, and the consecutive years of residence are “cleared,” starting again from the next year.
Tax Implications for non-domiciled individuals after Six Years of Continuous Residence
If a non-domiciled individual has resided in China for 183 days each year for the previous six years and has not stayed outside China for more than 30 days in any year, then his/her global income should be subject to individual income tax in China for the tax year (the seventh year).
Example: A foreign employee who resides in China for 183 days in 2025 and has continuously resided in China for 183 days each year from 2019 to 2024 without staying outside China for more than 30 days.
According to the above analysis, in the “preceding six years” of 2025, which are the years 2024, 2023, 2022, 2021, 2020, and 2019, this employee has resided in China for more than 183 days each year, with no single departure exceeding 30 days. Therefore, this employee should pay individual income tax on global income in China for 2025.
Suppose this employee stayed outside China for more than 30 days in 2024. In that case, the part of the income from outside China and paid outside China in 2025 is exempt from individual income tax in China, and the calculation of consecutive six years of residence starts again from 2025.
In this case, if this employee does not want to pay individual income tax in China on the global income, the only way is for the employee to stay in China for less than 183 days in 2025, thereby not meeting the criteria for being a resident individual for that year. If the employee stays in China for 183 days or more in 2025, even if there is a single departure of 30 days in that year, the employee must pay individual income tax in China on global income for that year.
Calculation of Residence Time
When calculating residence time, non-domiciled individuals should accurately calculate their days of residence in China. Specifically, when calculating the cumulative days of residence in China, the days when an individual stays in China for less than 24 hours are not counted as days of residence in China. Similarly, when calculating whether a single departure exceeds 30 days, the same rule applies to determine the days of residence outside China. In addition, the tax year in China is the calendar year, and situations that span across years should be calculated and attributed to each respective tax year.
Our Reminder
Individuals without domicile should properly keep records of each entry and exit, and accurately calculate their cumulative days of residence in China and the consecutive years of residence in China from 2019 to the present tax year, as well as the number of days of single departure exceeding 30 days in a tax year. If necessary, arrangements for entry and exit should be made promptly to restart the calculation of consecutive years of residence. At the same time, when completing the annual reconciliation and settlement of comprehensive income tax, non-domiciled individuals should accurately fill in the information on the “consecutive years of residence in China” and avoid filling in data arbitrarily. If the situation is complex or if analysis cannot be done independently, it is recommended to seek help from professional organizations.
