Josh Summers
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Income Taxes for Expats in China Explained

Taxes follow you everywhere you go… For expat taxes you have to consider the tax situation both in your home and your host country.

This post is intended to give you a high level overview of the expat tax situation when earning income in China, plus more specifics for US citizens. I am not a tax professional, just someone who files my own taxes and tries to take great care to do it right. You should not in any way rely on the information provided here. Please consult a tax adviser. (You knew I had to put this special disclaimer in, right? Even though my Site Policies cover this, I wanted to make sure. I know how hard it is to find good tax info for US citizens abroad.)

US-expats living abroad still need to file a US tax return

As a US citizen, no matter how much time you spend abroad, you have to file a US tax return, even if you may not owe taxes to Uncle Sam.

For taxes back in the US and your home state, I advise you to keep good track of all days you spend stateside including time of arrival in and departure from the US. You will need that once tax time comes around to figure out your residency and foreign earned income exclusion.

If your employer is a Chinese company you will not receive a W-2. There is no formal agreement (yet) between the US and China that would standardize the tax reporting. But I heard it is in the works, so in the future you (and the IRS) may get a W-2 from a Chinese employer.

The IRS has a local office in Beijing and offers yearly tax workshops that a very informative. I have also found them to be very responsive when I emailed them with a specific question.

China collects income tax, too

China taxes expats on the income they make in China. If you stay in China for more than 5 full consecutive years,  then your worldwide income becomes subject to Chinese individual income tax. To avoid this, leaving China for a duration of more than 30 days, breaks up the full year and restarts the clock.

China has a progressive tax system, so the tax rate increases with higher income, similar to the US. A minimum amount is exempt from taxes.

If you are paid in China, your employer will most likely withhold Chinese income taxes for you and issue a formal statement after the end of the year about the amount of tax paid. This statement is important when you want to move money out of the country, so hang on to it.

Proof you paid taxes to get your hard earned money out of China

To transfer money out of China (read more about money and banking in China), you have to prove that you paid your taxes to China on this income, and the year-end tax statement proves it. Don’t wait too long to use the tax statement because it does expire. Only the prior year can be used, so if you decide in 2013 that you want to wire your earnings from 2011 out of the country using the 2011 year-end statement to prove you paid taxes, you are out of luck.

There are other ways to transfer money out of the country but that is beyond the scope here.

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