This article aims to discuss what is known as a Certificate of Tax Residency(中国税收居民身份证明). As is discussed in the following, the Certificate of Tax Residency is applicable to both foreign nationals employed in China, and foreign companies operating as subsidiaries (e.g. a WFOE or a FICE).
Why would, or in some cases should, a foreign national or company seek to acquire a Certificate of Tax Residency?
For the most part, there is solely one reason why this certificate would be of relevance to either an individual or entity. When it comes to having domicile, sourced income and/or residence in a country other than that of one’s origin, tax implications may arise that preside over earned income, profit, etc. It then becomes a question of taxpayer residence; to whom do I owe taxes to and how do I decipher this quandary – though assessing tax residency is a separate process in itself.
Once it has been established that residence and taxes are to be paid within China’s confines, a two-fold concern arises. Firstly, no entity, be it individual or firm, wishes to be subject to two sets of tax regulations, or in other terms, double taxation. Secondly, and from a legal and compliance standpoint, proving that an entity is compliant in regards to their tax payments may be required by certain jurisdictions and may prove useful to avoid the previously mentioned issue.
The Certificate of Tax Residency does just that – it is a legal document issued by the Tax Bureau stating that said entity is tax compliant. For those who wish to provide documentation to their country of origin jurisdiction, this certificate provides relevant proof and authentication.Ultimately, the purpose of this certificate is to act as legal proof that the specified foreign national is both, and already, a qualified Chinese Tax Resident and has their respective individual income tax being withheld by their employer, as the law stipulates. Essentially, it is proof that the foreign national pays individual income tax levied on their income here in China.
More on the process can be found below.
Certificate of Tax Residency
As stated above, the Certificate of Tax Residency applies to both expat employees and foreign subsidiaries. A few specifics to keep in mind are that the application procedures are different and the time required for issuing the certificate can vary by region and tax authority. For example, in Shanghai, tax authorities can issue the certificate in about five business days for expat employees.
Expat Employee Applications
Once the above measures have been completed, foreign workers may often be left in a position of speculating what happens with their taxation status in their home country jurisdiction. Each country may have their own regulations adjudicating their citizens’ earned income abroad. Chinese taxation has its own rules that are more or less contingentto time spent in China, sourced income location and tax payer status. Double Taxation Agreements also need to be considered.
For the Local Tax Bureau to issue the certificate, expat employees bear the burden of being qualified Chinese Tax Residents and ensuring that the employer they work for is compliant in regards to withholding employee individual income tax. In this case, and as the Shanghai Tax Bureau has stipulated, the foreign individual must also have held domicile in China for a minimum of a year. As taxation on foreign employee’s income is time sensitive, more can be found here on the various taxation parameters.
It should be clear that issuance of this certificate is not an automatic method of, for example, avoiding taxation requirements in foreign individuals’ home jurisdiction. It is often suggested that foreign employees first communicate with their respective tax authorities in their home countries on the status and adequacy of the Certificate of Tax Residency.
A set of required documents are to be prepared for the Local Tax Bureau:
• Application Form
• Copy & Original Passport
• Copy of Tax Registration Certificate of Employer
• The original PRC IIT and other tax payment receipts (if no tax payment is provided a written explanation letter is required)
• Supporting documents for PRC residence days
• Other supporting documents required by the tax authority in charge
Taken as example, if a multinational firm has established a subsidiary in China and wants to prove that their subsidiary is compliant to China’s taxation laws, the certificate in discussion would suffice. For subsidiaries, comparatively, no requirements exist as they do for foreign national individuals.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.
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