How To Pay Your Taxes Abroad

Release time:2018-03-02

Many individuals wonder how living in China will affect US tax for expats. China also has one of the most complex tax structures for expatriates. It is important to understand your US expat taxes both in China and in the US.

 

US Tax For Expats In China

 

If you are a citizen or permanent resident of the United States, then you are obligated to file US taxes with the IRS each year, no matter where you live or how much you make. In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with the FBAR FinCEN 114 Form (which, beginning with the 2016 tax year, must be filed on Tax Day, April 15th).

 

While the US taxes the international income of its citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation, including:

 

-    The Foreign Earned Income Exclusion, which allows you to decrease your taxable income by the first $100,800 earned as a result of your labors while a resident of a foreign country.

-    A foreign tax credit that could allow you to lower your tax bill on your remaining income by certain amounts paid to a foreign government.

-    A Foreign Housing Exclusion that allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.

 

With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your US tax for expats.  Please note that even if you do not believe you will owe any US income taxes, you will more than likely still be required to file a return.


 

Are You Considered a Resident of China?

 

China has one of the most complicated residence status regimes in the world for foreign nationals, and generally will require reviewing multiple taxation agreements with the US. Normally, a non-Peoples Republic of China (PRC) national who resides in China for an entire tax year is considered a resident for tax purposes. If an individual spends more than 30 days (continuous) or more than 90 days (cumulative) outside of mainland China in any given calendar year, they will lose their resident status for that year.

 

All foreign nationals are required to register with the State Administration of Taxation (SAT) as soon as they are eligible for taxation in China.

 

After being a resident for 5 years, you will be subject to tax on your worldwide income.

China Income Tax Rates

 

Income from employment is taxed monthly at a progressive tax rate that caps at 45%.

 

The tax rates from Chinas State Administration of Taxation (SAT) for 2016 are as follows:

 

Earnings in RMB

Rate Applicable to Income Level (%)

0-1,500

3%

1,501 4,500

10%

4,501 9,000

20%

9,001 35,000

25%

35,001 55,000

30%

55,001 80,000

35%

80,001 and above

45%

  

Note that there is a monthly standard deduction for foreign nationals of RMB 4,800.


 

Your employer should withhold taxes on a monthly basis. For income on stocks or investments, you will need to get in touch with a Chinese tax expert, as there are complex rules regarding taxation of foreign nationals.

 

There are some allowable deductions to income, but you will need to submit relevant documents to the tax authorities for registration. You will also need to submit registration papers to enjoy any benefits of the US China tax treaty on your US tax for expats.


 

US China Tax Treaty

 

The US and China have a tax treaty in place, which is helpful when determining which country should be paid specific taxes and at what point those taxes should be paid.  The US China tax treaty is an expats guide to ensuring the taxes are paid to the right country.  Note that you need to register with the tax authorities of China in order to take advantage of any of the benefits of the treaty. If you are unsure of the language in the treaty or have any other questions, be sure to talk to a tax advisor to ensure the correct taxes are paid to the correct country.

 

China Tax Due Date

 

Being aware of the tax dates in China is important, because they are different than the deadlines for your US expat taxes. For example, you will need to file your Chinese tax return before you file your US tax for expats.

 

The tax year in China is the same as the United States: January 1st through December 31st. Unlike US taxes, Chinese taxes must be filed with the State Administration of Taxation by March 31st. China does not offer extensions for any taxpayers and does apply penalties in the event of a late filing.

 

Your employer will be required to file taxes for you on a monthly basis.  Employees are also required to file a return if you meet the following criteria:

 

-    Have more than one Chinese employer

-    Have income earned in China from which taxes were not withheld

-    Have an annual income of RMB 120,000 or more

 

If a taxpayer is not living in China, they are exempt from filing Chinese tax returns if they were not in China for the entire tax year.



 

Social Security in China

 

China requires that foreign nationals participate in Chinas social insurance system without details on what types of insurance foreign nationals are obligated to contribute to, what benefits foreign nationals will be eligible for, or what amount can be withdrawn by foreign nationals in the case that they no longer live or work in China.

 

The US does not have a Social Security agreement with China; this is one area where US expats may face double taxation.

 

Is Foreign Income Taxed Within China?

 

While Chinese nationals are taxed on their foreign earned income, foreign nationals are only taxed on their income earned from a Chinese source.  That said, if a taxpayer has been a resident in China for more than five years, they will be required to pay taxes on their worldwide income.

 

Other Taxes in China

 

In addition to income tax on salaries paid, there are other forms of income that are taxed in China.

 

There is a standard value added tax (VAT) rate of 17% on consumer goods, with a reduced rate of 13% applying to certain items, such as food, books, and utilities.  Exports are generally tax exempt.

 

Chinese sourced capital gains are taxed at a flat rate of 20%, including sale of real estate, assets, or shares. If you have been a resident of China for more than five years, you will also be taxed on capital gains sourced outside of China.


 

Saving on US Tax for Expats

 

China is a beautiful country with a fascinating culture and unending opportunities.  In the event that an American expatriate travels to China, it is important that they are aware of the tax rates, deadlines, and regulations of the tax authorities in China, while not forgetting their obligation to file US expat taxes.

 

 

What Forms Should You Fill Out?

 

Depending on the nature of your income source, there will be different forms the US government will require. The link below will take you to the official IRS website where youll be able to find the most updated forms. The most common one used is the US Individual Income Tax Return (1040).

 

https://apps.irs.gov/app/picklist/list/formsPublications.html?value=1040&criteria=formNumber

 

Where Do You Send Your Forms?

 

Do NOT send your tax forms to the same places youve been sending them when you lived in the US. Each state has a different office as does international residents. If youre working abroad in China filing your US Individual Income Tax Return (1040), your paperwork will need to be send to the following address:

 

If you are a TAXPAYER who live  in...

and you  ARE NOT ENCLOSING A PAYMENT, then use this address...

and you ARE ENCLOSING  A PAYMENT, then use this address...

A foreign country, U.S. possession or territory*, or use an APO or FPO address, or file Form 2555, 2555-EZ, or 4563, or are a dual-status alien.

 

*If you live in American Samoa, Puerto Rico, Guam, the U.S. Virgin Islands, or the Northern Mariana Islands, see Pub 570.

Department of the  Treasury

Internal Revenue Service

Austin, TX  73301-0215

USA

Internal Revenue Service

P.O. Box 1303

Charlotte, NC 28201-1303

USA

 

 

If youre filing other forms, please visit the IRS link below for the specific address.

 

https://www.irs.gov/filing/international-where-to-file-form-1040-1040a-and-1040ez-addresses-for-taxpayers-and-tax-professionals