Expat Taxes in China introduction


Here’s a message I posted to an expat chat group in China after a
flurry of other posts. I felt compelled to contribute. I’m not an
accountant, but I spent an exorbitant amount of time figuring this out.
It can get complex if you let it.Anyways, here’s a quick brain dump.
Hope it helps…

First, the truth is that enforcement is difficult for both the
US and Chinese govts, but accountants, attorneys and government
agents will always tell you the strictest rules (and often try
to get you to pay them to handle it for you). Some people make
their filing decisions based on risk of being audited. The
more I asked around, the more I realized that many people
I met were cutting corners with a low *perceived* risk. I
am told that the trigger for the US IRS to even think about
an audit on a citizen working in China is a gross annual

income of US$250,000. Apparently, this has held true since
the US and China signed some tax treaty 20+ years ago. And,
I’ve never heard about any expats getting put in Chinese jail
for tax evasion. It’s kind of a personal decision on how to handle
things. You may have a chance to allocate salary accross different
jurisdictions like China, HK and the US. HK being the lowest tax
jurisdiction with a flat tax of 16%. If you want to run for Senator
some day, it may not be worth the risk to save a few hundred bucks
on taxes… Also, your company may take a different stance on the
risk question. My policy is to take the high road and do it all
by the book. The fact that so many people bend the rules
(sometimes unwittingly) may muddy the waters when you are asking
around for tax advice from non-professionals.
Regarding the “Foreign Earned Income Exclusion”, pretty sure
it is $80,000, which is not to say that you don’t pay taxes on
that income, only that you don’t pay additional US tax on that
income. You still have to document that you paid tax in China.
I think there are ways to do it so that you don’t have to pay
think you will get a big refund. Or don’t file anything in the
US at all until the end of the year. (Note: the US tax deadline
for expats is June 15 not Apr 15.) The cut off to qualify for
the exclusion is that you need to be out of the US for 330 days
in any rolling 12-month period. You can prorate that period across
2 US tax years. Depending on your salary range, you may find that
the Chinese and US (federal) tax rates are about the same, so this
may not even matter that much. If your salary is high, it won’t
matter at all because your Chinese tax will be higher anyways.

By the way, be careful with terminology. A “tax deduction” is different
than a “tax exclusion.” The math works out differently.
Also, I have learned that it does not matter what banks are invovled:
US, PRC, HK, super secret private numbered Swiss acct. All these rules still apply.
The only thing that matters is where you physically earned your income
(which, admittedly, gets to be a fuzzy topic once you dig into it).