US Expat Taxes Explained: Filing Taxes as an American Living in China
How Working in China Impacts US Expat Taxes
Many individuals wonder how living in China will affect their US expat taxes. As a major manufacturing hub, China is a place where many Americans find themselves relocated in Beijing, Shanghai, Guangzhou, or other regions for work purposes. With the incredible rate of growth in the last 20 years, it is easy to see why people are investing their time and money in China. That said, 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 Expat Taxes 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.
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 Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.
While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:
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 allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
- The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
- The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result 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 expat taxes. 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. For more information, see US Expat Taxes Explained.
Who is 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-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.
China Income Tax Rates
Income from employment is taxed monthly at a progressive tax rate that caps at 45%.
The tax rates from China’s State Administration of Taxation (SAT) are as follows:
|Earnings in RMB||Rate Applicable to Income Level (%)|
|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 expat taxes.
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 expat’s 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 expat taxes.
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 domiciled 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
Only recently has China required that foreign nationals participate in China’s 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%, include 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.
There is no inheritance, estate, or wealth tax in China.
Saving on US Expat Taxes
China is a beautiful country with a fascinating culture and unending opportunities. In the event that an American expatriates travel to China, it is important that they be aware of the tax rates, deadlines, and regulations of the tax authorities in China while not forgetting their obligation to file US expat taxes. If you have any questions about US expat taxes, please contact our expat tax experts