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Do expatriates acting as legal representatives or directors of PRC enterprises need to pay tax?
In recent years, we have noticed that many foreigners appointed as legal representatives or directors of foreign invested enterprises in China think that they do not need to declare and pay personal income tax if they do not receive wages from those company or the number of days in China does not exceed 90 days or 183 days.
Is the understanding correct? If not, how should personal income tax be reported and calculated?
Firstly, let us look at the relevant regulations.
According to Article V of the Guo Shui Fa [1994] No. 148, any expatriate who acts as a director or holds a senior management position in a PRC company is required to report and declare his/her personal income for the period of his/her office, irrespective of whether he/she carries our duties inside or outside China. Income received from non-PRC companies must also be reported. For the purpose of this Article, legal representatives and directors are regarded as a company's senior management.
Therefore, expatriates who act as legal representatives or directors or other senior management positions of a PRC company are required to pay personal income tax in accordance with the said Article.
Secondly, let's look at how personal income tax is calculated.
According to the Guo Shui Fa [1994] No. 148, the income tax payable there from is assessed based on the number of taxable days in China shown in the expatriate's immigration record. Different computation methods will be applied with reference to the duration of residency in China:
- Duration of residency exceeds one year but less than 5 years, while not owning any permanent residence in China
- Duration of residency being less than one month
Here are some tips for expatriates who are now acting or will act as the legal representatives or directors or other senior management positions in PRC companies:
- Keep a complete and detailed immigration record, with supporting documents
- Report your personal income in a timely manner, in accordance with the relevant statutory requirements
If there are any questions or any assistance to the above is required, please contact call Ms. Susan Lin at 86-755-25181386 or Ms. Lennie Lam at 852 34656999.
Excellent Corporate Services Limited
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