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Individual income tax rule on foreign source income clarified in China

On 17 January 2020, the Ministry of Finance and the State Taxation Administration jointly issued a circular clarifying the individual income tax treatment of foreign source income. The Circular applies to tax year 2019 and subsequent tax years.

On that same date, it was announced that previous regulations on individual income tax treatment had been abolished. 

The main contents of the Circular are summarized below.

Definition of foreign source income

The following income is regarded as income sourced outside China:

  • income from services provided outside China on account of holding office, employment or performance of a contract, etc.;
  • author remunerations paid and borne by foreign enterprises or other foreign organizations;
  • income from granting any kind of licence to be used outside China;
  • income from carrying on a business outside China;
  • dividends, interest and bonuses derived from foreign enterprises or other foreign organizations;
  • income from leasing properties outside China;
  • income from the transfer of immovable property located outside China or the foreign transfer of other properties;
  • income from the transfer of equity interests in Chinese enterprises (shares, shareholdings or other equity interests). If more than 50% of the value of the invested enterprise is derived directly or indirectly from immovable property situated in China at any time within a period of 3 years before the transfer of an equity interest, the capital gain from that transfer is regarded as income sourced from China;
  • accidental income paid and borne by foreign enterprises or other foreign organizations.

The provisions issued by the Ministry of Finance and the State Taxation Administration prevail if they stipulate otherwise.

Calculation of tax payable

For the computation of tax payable, the following rules apply:

  • foreign comprehensive income must be aggregated with domestic comprehensive income;
  • foreign business income must be aggregated with domestic business income. However, foreign losses calculated in accordance with the Individual Income Tax Law and its Implementation Rules may not be set off against domestic taxable income, but may be carried forward to be set off against profits derived from the same country or region; 
  • foreign dividends, interest, bonuses, rental income, capital gains and accidental income must be calculated separately from domestic income.

Double taxation relief

Foreign income taxes paid by an individual may be credited against the Chinese tax payable on his foreign income on the basis of the per-country and item-by-item methods.

The following foreign taxes are not creditable in China:

  • foreign income taxes incorrectly and unlawfully imposed or paid;
  • foreign income taxes the imposition and collection of which contravene the provisions of tax treaties or tax arrangements (with Hong Kong and Macau) concluded by China;
  • interest, fines and penalties due to late payment or underpayment of foreign income taxes;
  • foreign income taxes paid by the taxpayer, but which have actually been refunded or compensated by foreign tax authorities;
  • foreign income taxes on foreign income that is tax exempt in accordance with the Individual Income Tax Law and its Implementation Rules.

Foreign income taxes that are exempt or are reduced by a contracting state may be credited in China if the tax treaty with that contracting state contains a tax sparing credit provision. Unused foreign tax credit can be carried forward for 5 years.

To credit foreign taxes, the taxpayer must provide a certificate of tax payment for the corresponding year issued by the foreign tax authority. In cases where it is impossible to provide such a certificate, the taxpayer may alternatively present the foreign tax return (or notice from the foreign tax authority for tax payment) plus the bank statement stating the tax payment transaction.

The statute of limitation for claiming foreign income tax credit is 5 years from the year in which the foreign income is earned.

Outward expatriates

Employment income or income from personal services derived by individuals resident in China who are seconded abroad for work is subject to withholding tax if such income is paid or borne by the foreign unit of a Chinese institution (which includes a Chinese domestic enterprise, other economic organization, foreign branch of the government departments, subsidiary, embassy and representative office, etc.) which files the tax return and settles the tax payment in the capacity of a withholding tax agent.

In cases where the Chinese institution has not withheld the tax or the foreign unit does not belong to a Chinese institution, the organization seconding the personnel must report on the secondment to the tax authority and provide information, including the name of the seconded personnel, identity document and the number of the identity card, occupation, destination country or region of the secondment, the name and address of the foreign unit, the duration of the secondment, domestic and foreign income, and tax payments.


Individual residents who derive income from outside China are required to report their foreign income between 1 March and 30 June of the year following the year in which the foreign income is earned. Where the foreign tax year does not coincide with the calendar year, the calendar year in which the last day of the foreign tax year falls is considered to correspond with the Chinese tax year.

Foreign income or foreign tax payments denominated in foreign currency must be converted into CNY at the middle exchange rate on the last day of the last month.


Women Edged Out Men in Payroll Employment in December in USA

The reason for this is the increase in the number of jobs in which women are predominantly employed, for example, health care.

According to the latest data from the Bureau of Labor Statistics of the US Department of Labor, Women made up a slightly larger share of non-farm employment compared to men in December. It happened for the first time in 10 years.

The ratio of women was 50.0 percent over the past three months. However, the detail shows a slight increase from 49.99 percent in November 2019 to 50.04 percent in December 2019.

According to Ariane Hegewish, the reason for this is the increase in the number of jobs in which women are predominantly employed, for example, health care. She is the Director of the Employment and Earnings Program at the Women’s Policy Research Institute in Washington, DC.

“It’s not that women are overtaking men in the workforce,” she said. The BLS data measures the number of men and women on employers’ payroll and does not include those in the workforce who perform contract work or are self-employed, she noted.  

But while the latest BLS data does not measure labor-force participation, Hegewisch said the finding is signficant.

“This trend is noteworthy because it’s not just a one-month blip,” she said. What is more interesting is “this trend of more new jobs on payroll going to women than men … In any case, almost every other worker is a woman.”

Read more on www.shrm.org


Pay Gap that Exists for People with Disabilities in UK

The wage gap for workers with disabilities is 12.2 percent, with an average wage of $13.94 per hour compared to $15.88 for non-disabled workers

It is easy to imagine that in the United Kingdom (U.K.) in 2020 a physical or mental disability will not determine your salary.

However, data from the Office of National Statistics showed that the employment situation in the UK is far from complete. The wage gap for workers with disabilities is at shocking 12.2 percent, with an average wage of £ 10.63 (about $ 13.94) per hour compared to £ 12.11 (about $ 15.88) USA) for nondisabled workers. The largest pay gap of 18.6%. is between people with mental health problems, such as depression, anxiety, or mental illness.

So why is this still an issue in a modern civilized society, and what can be done to challenge it?

According to the Equality Act 2010, discrimination against a person with a disability is illegal. The Equality Act states that disabled person is a person with physical or mental impairment who has a significant and lasting adverse effect on his or her ability to perform normal everyday activities. Long term means more than 12 months.

Discrimination can be direct or indirect and can take many forms. A person should not be fired for disability. Section 20 of the Equality Act confirms that the employer is also obligated to make reasonable adjustments for a worker with a disability, and section 21 says that if he does not, it is discrimination.

So if discrimination is illegal, why is there still a pay gap?

Laws mean nothing if you cannot enforce them. The Equality Act has been criticized for issues with its practical application, issues that have been compounded by public-sector cuts. Law centers and legal aid providers have been drastically reduced and free employment law advice is limited. Specialist discrimination advisors are in short supply, meaning victims of discrimination are not being made aware of the rights they have or how to bring a claim.

Appropriate employment opportunities are critical to bridging the pay gap and continuing discrimination against people with disabilities in the UK. The government should invest in key services and support for potential employees, create and strengthen existing legislation and ensure that employers are accountable for their actions.

Read more on www.shrm.org

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