Memorandum on Individual Income Tax Issues Related to Foreigners' Duration of Stay in China

　　Ⅰ. Description of the Factual Situation

　　Company A recruited two foreign employees. In calculating the number of days of its foreign employees' stay in China in 2025, the financial staff Xiao Li found the following circumstances: 1) Bob, whose individual income tax had been subject to withholding and prepayment on a resident individual basis, terminated his employment early and consequently failed to meet the 183-day threshold; 2) Anna, whose individual income tax had been subject to withholding on a non-resident individual basis, exceeded the 183-day threshold at the end of 2025. Q: How should foreign employees file their individual income tax when they cannot accurately ascertain the number of days of stay in China at the time of the initial tax filing?

　　Ⅱ. Relevant Tax Laws and Regulations

　　1. Law of the People's Republic of China on Individual Income Tax

　　2. Regulations for the Implementation of the Law of the People's Republic of China on Individual Income Tax (Order No. 707 of the State Council)

　　3. Announcement of the Ministry of Finance and the State Taxation Administration on Relevant Individual Income Tax Policies Regarding Non-Resident Individuals and Resident Individuals Who Are Not Domiciled in China (Announcement No. 35 [2019] of the Ministry of Finance and the State Taxation Administration)

　　4. Announcement of the State Administration of Taxation on Issuing the Administrative Measures for the Withholding and Filing of Individual Income Tax (Trial) (Announcement No. 61 [2018] of the State Taxation Administration）

　　III. Problem Analysis

　　1. Criteria for residential and non-resident individuals

　　According to the Regulations for the Implementation of the Law of the People's Republic of China on Individual Income Tax:

　　Residential individual: An individual who has a domicile in China, or who stays in China for 183 days or more in a tax year, shall be taxed on comprehensive income. He/she is eligible for additional itemized deductions or tax-exempt fringe benefits for expats and shall file the annual reconciliation.

　　Non-resident individual: An individual who is not domiciled in China and does not reside in China, or who is not domiciled in China but stays in China for an aggregate of less than 183 days in a tax year, is not required to file an individual income tax annual reconciliation. He/she is only eligible for 8 tax-exempt allowances for expats.

　　Therefore, for corporate finance professionals, when filing the initial individual income tax for foreign employees in a tax year, they shall estimate the employees' days of stay in China during the tax year and their days of presence within the period specified under the applicable tax treaty based on the employment contract and other relevant factors, and calculate and withhold tax accordingly.

　　2. Initial tax filing and identity confirmation

　　For the first filing in a tax year by an individual without domicile, as the actual length of stay in China remains undetermined, there is no need to await the year-end confirmation. Instead, he/she shall estimate the days of stay in China for the tax year, taking into account factors such as the employment contract, tenure, entry schedule, and anticipated stay, and file and withhold individual income tax according to the estimated residency status.

　　3. Rules for handling discrepancies between estimated and actual tax residency status

　　Situation 1: Pre-determined resident individual → Actual non-resident individual

　　It is similar to the situation faced by Bob. He was initially estimated to be a resident individual and filed accordingly at the beginning of the year. However, he is deemed to be no longer eligible for resident individual status, because his actual stay in China during the tax year was less than 183 days due to early departure.

　　(1) Handling time: Within 15 days from the date on which the taxpayer ceases to meet the resident conditions, and in any case no later than 15 days after the end of the tax year, the taxpayer shall notify the competent tax authority;

　　(2) Tax settlement: The annual tax payable shall be recomputed on a non-resident individual basis, with any overpaid tax refunded or underpaid tax collected. No late payment penalty shall be levied on the supplementary tax payment, while tax refunds shall be processed pursuant to the relevant provisions.

　　Situation 2: Pre-determined non-resident individual → Actual resident individual

　　It is similar to the situation faced by Anna. She was not domiciled in China at the beginning of the tax year, so she was filed on a non-resident individual basis. Later, she became a resident individual upon reaching 183 days of stay in China during the tax year as a result of an extended stay and postponed departure.

　　(1) Withholding method: It shall not be altered in the tax year. No filing status shall not be changed before the year-end.

　　(2) Tax calculation adjustment: After the year-end, the taxpayer shall file an annual reconciliation and final settlement for comprehensive income as a resident individual. The taxable income and applicable tax rate shall be computed on a resident individual basis. The recalculated tax amount shall then be compared with the tax already withheld, and the difference shall be refunded to or collected from the taxpayer.

　　(3) Special situation: If an individual leaves China during the tax year and is not expected to re-enter before the year-end, the annual reconciliation and final settlement may be completed before departure.

　　Situation 3: Estimated stay ≤ 90 days → Actual stay > 90 days (or for residents of a Contracting State: Estimated stay ≤ 183 days → Actual stay > 183 days)

　　In the case where the actual accumulative days of stay in China of a non-domiciled individual exceeds the estimated 90-day threshold (or, for a resident of a Contracting State, the estimated 183-day threshold within the treaty period), the taxpayer shall notify the competent tax authority within 15 days after the end of the month in which the threshold is reached. The tax payable on prior months' salary income shall be recalculated, the supplementary tax shall be paid with imposition of late payment penalty.

　　IV. Conclusion

　　Non-domiciled foreign individuals may, at the time of their first tax filing in a tax year, make a preliminary estimation of their days of stay in China in accordance with the employment contract and the planned term of assignment, and withhold individual income tax on a estimated status (resident or non-resident individual) basis.

　　Bob, who initially filed taxes as a resident individual, shall notify the tax authority between the date he is confirmed to be ineligible for the 183-day threshold and January 15, 2026. His annual tax liability shall be recalculated based on his status as a non-resident individual, with a corresponding adjustment for any overpayment or underpayment. No late payment penalty will be levied on the supplementary tax payment.

　　Anna, who initially filed as a non-resident individual, shall not have her withholding method changed during the 2025 tax year. After the year-end, she shall file an annual reconciliation and final settlement for her individual income tax in 2025 as a resident individual. In the event that she leaves China in 2025 and is not expected to re-enter before the year-end, she shall file an annual reconciliation prior to departure.

　　It is advisable for enterprises to maintain detailed records for foreign employees and actively monitor their dates of entry into and departure from China, enabling early identification of potential shifts in their tax residency status. Besides, enterprises shall urge their foreign employees to strictly observe the filing deadlines, complete tax refunds and supplementary payments, and file an annual reconciliation and final settlement in a timely manner. It is also essential to guarantee the accuracy of their applicable tax residency status and the compliance of corresponding withholding obligations, thereby effectively controlling tax risks.