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Q: What would happen to the conditions under which individuals not domiciled in China (hereinafter referred to as “non-domiciled individuals”) can be exempt from Chinese individual income tax (IIT), after the Announcement of the Ministry of Finance and the State Taxation Administration on the Standards for Determining the Length of Residence of Non-PRCdomiciled Individuals (the Announcement) came into force?
A: Pursuant to the new Individual Income Tax Law of PRC, the IIT residency threshold for non-domiciled individuals is cut from the previous one year to the current 183 days. But policies and arrangements for IIT exemption on their foreign-sourced income are sustained, and exemption conditions are further eased:
(1) The consecutive period for which non-domiciled individuals can live in China before becoming resident taxpayers is extended from five years to six years (the Six Year Policy);
(2) The consecutive residence period can be reset as long as a non-domiciled individual is away from China for more than 30 consecutive days in any calendar year during the six-year period.
(3) The management method is modified from the original approval by the competent taxation authority to the current put-on-record filing, a change that simplifies the procedures and makes things convenient for taxpayers. Moreover, the Announcement also sets out, if a non-domiciled individual is physically present in China for less than 24 hours on a day, that day shouldn’t be counted as a day of residence in China; the count for the new Six Year Policy commences from January 1, 2019. So the residence period before that day is exempt from the counting scope.
Q: How to count the days for which non-domiciled individuals (including residents of Hong Kong, Macao and Taiwan) reside in China?
A: The days when they are physically present in China for 24 hours should be counted as days of residence. Those on which they are physically present in China for less than 24 hours shouldn’t be counted as days of residence.
For example, Mr. Li who is a resident of Hong Kong and works in Shenzhen. He usually arrives in Shenzhen on each Monday and returns to Hong Kong on each Friday night. In this case, there are three days out of a week that can be counted as days of residence; calculated by 52 weeks per year, Mr. Li spends 156 days on the mainland throughout a year; by the 183 day rule, he is not a resident individual in China and therefore, all of his foreign-sourced income could be exempt from Chinese IIT.
Q: When will the count of the six-year period of consecutive residence for non-domiciled individual (including residents of Hong Kong, Macao and Taiwan) start?
A: The count of the six-year period of consecutive residence (for 183 days or more in a calendar year) commences from 2019 and therefrom. It means that the residence period before 2019 will be reset. According to this provision, none of non-domiciled individuals reside in
China for six years, and foreignsourced income derived by them for tax years up to 2014 (inclusive) could be exempt from Chinese IIT. Furthermore, if a non-domiciled individual is away from China for more than consecutive 30 days in any year from 2019, he could still reset the six year period.
For instance, Mr. Zhang, a Hong Kong resident, has been working in Shenzhen since January 1, 2013, and will return to Hong Kong on August 30, 2026. During the period of time, he stays in Shenzhen except for the period between February 1 and March 15, 2025 when he will return to Hong Kong for business purpose.
Since the years of residence in 2018 and before are all reset, the period from 2019 and 2024 when Mr. Zhang resides in China for 183 days or more in each year is less than six years. Therefore, the foreign-sourced income derived by him could be exempt from Chinese IIT.
Mr. Zhang’s domestic and foreign-sourced income derived in 2025 should be charged Chinese IIT.
Since Mr. Zhang will be away from China for 30 consecutive days in 2025, his years of consecutive residence (for 183 days or more in a calendar year) in China could be reset. In this case, the foreign-sourced income derived by him in 2026 could be exempt from Chinese IIT.
