Job Discussion Forums

[sfarkas103]

I was given this information about a job in Fuzhou. Salary is 6000RMB with a living allowance of 1700RMB per month. They state the following:

As part of your employment with IEN English the Chinese institute will apply and receive a expert�s certificate for your employment. Prima Facie this document as a teacher in China provides a tax free status on your salary and allowances while under contract.

Is this true from anyone's experience/knowledge and if so why doesn'y any other organization mention this?

[koalabear]

As far as I know, if you make under 4000 RMB a month you do not pay any taxes. If you make more than that, then the schools usually pays the taxes for you without you even knowing about it. You might also work part-time for some private schools but then your work there might be unofficial and therefore no taxes will be paid. However, if you ever go to a bank to exchange some of your RMB into USD or any other currency you will need a paper from the tax office certifying that you have paid your taxes (school might help you to get that)

[sfarkas103]

I know that under 4000 is tax free, but they state that over 4000 is no problem also. The implication, if this is true, is large. A lot of people here make 6-8,000 per month through regular contract state run univerisites, and if that is tax free to a foreign expert then we should know it. I think the statement is either a falsehood or a misinterpretation by IEN.

[Volodiya]

I believe this is not only possible, but probable.

Depending on your country of origin, a teacher at an educational institution can be exempted from paying income taxes for a period of the first two to three years of employment.

(In the U.S., the foreign teacher will fill out and sign a form which the employer then submits to the taxing authorities to secure the exemption. Obtaining this exemption requires the informed participation of the employer. Some Chinese payroll departments may not be aware of the effects of tax treaties, nor know how to obtain the benefits of them for their employees.)

In many, if not most cases, there is no upper limit on the salary that can be exempted in this manner- it depends on the particulars of each tax treaty, and they do differ. Search, "china tax treaty (and) [name of your country of origin]", for the particulars that apply in your case.

[sfarkas103]

I know that in the US about $78,000 foreign earned income is exempt if you meet time requirements (can only be in US for less than 30 days a year). However, they state that Chinese taxes are exempt. Another school told me that I would pay about 200RMB on a salary of 6000. This place says no tax on 7700.

[Volodiya]

It looks like my illustration of a foreign teacher working in the U.S. was a distraction, and confusing.

In your last post, you referred to exemptions from U.S. taxes for U.S. citizens working abroad: my post was directed at your question, about your obligation to pay Chinese taxes as a teacher teaching in an educational institution in China. Totally different issue.

Sorry I wasn't as clear and helpful as I meant to be.[/b]

[sfarkas103]

Maybe there was some miscommunication and I apologize. I have been told repeatedly here that over 4000RMB you, the teacher or school, pays Chinese tax. What they told me in that contract was that I do not have to pay it.

[sfarkas103]

and just to be clear, apparently they ( the hiring organization) doesn't either

[Volodiya]

That's the exact implication of one of the beneficial effects of a tax treaty: neither you nor your employer is obligated to pay what is exempted by treaty.

Have a look at your country's tax treaty with China sometime. They nearly all have an exemption, for a period of years, for teachers and researchers.

[sfarkas103]

Thanks Jh, but I gues I still miss something. Why do a few schools have the teachers pay Chinese tax on the amount over 4000? Ignorance by both parties?

[Volodiya]

That would seem to me to be the most likely explanation.

They may have never heard of a tax treaty. They may have heard of them, but not understand how to implement the exemption. Then, the individual teacher may be from a country which has no tax treaty with China (unlikely). Or, another, more sinister possibility is that they DO claim the exemption, but go ahead and hold out taxes from the employees pay (and pocket it themselves). This would seem to me to be highly unlikely in the case of a government educational institution.

[sfarkas103]

It wouldn't be a great shock if someone were to pocket it, but I refuse to believe that there are so many uninformed foreigners here. I worked on Wall Street for 8 years and fully understand the US side of this tax scenario. I will email some people and see what the true, straight scoop is about all this. I would imagine it's another example of a changing economic system and a gap of understanding/communication between departments here in China.

[Volodiya]

For the complete text of the U.S.-China Tax Treaty, see:

www.irs.gov/pub/irs-trty/china.pdf

in particular, Article 19.

Please forgive me, it's always easier to give advice than to follow it. I don't know how lucky I'd be getting a recalcitrant payroll dept in China to listen to me about this.

Good luck.

[sfarkas103]

Good stuff. Apparently then there is a problem on the US side because there is a contradiction with the IRS. There is no doubt that if you are in the foreign country for less than eleven and a half months of the year, with certain exemptions for things like SARS, etc., you can't claim a foreign income exclusion. The residency requirement is fairly stringent. There was an earlier post on this board about taxes, and most people said their schools paid the tax. So are they in fact paying a tax or simply making out as though you are being done a favour? I finished final exams today and have things I'd much rather being doing for at least tonight. I filed taxes in the US for the past 2 years and IRS publication 54 gives the skinny. It would not be a surprise if parts contradict.

[Volodiya]

I'm afraid we've opened a rather complex subject.

Hoping not to further complicate things for anyone who is trying to follow this discussion, I'll risk adding the following comments, especially directed to the situation of the U.S. citizen working in China, but the principles are applicable to all:
______________

When trying to answer the question, to what income taxes am I subject when working abroad, you must look at three sources of law- the law of the country where you work, the law of the country of your origin, and last, any applicable tax agreements which may exist between the two.

1) Chinese domestic law provides an income tax exemption for the first 4000 RMB of earnings per month for foreign workers, REGARDLESS of their country of origin and REGARDLESS of the nature of their work.

2) U.S. domestic law provides an income tax exemption from U.S. income taxes of approximately the first $80,000 of annual income EARNED ABROAD, REGARDLESS of the nature of the work (for people who meet certain foreign residency and other tests- please search IRS instructions for the rather complex specifics).

3) Lastly, the taxation treaty between the U.S. and China specifically exempts TEACHERS from all income taxation by the country in which they work; that is, Chinese teachers working in the U.S. and U.S. teachers working in China, for the first three years of their employment abroad.

All of these must be taken into consideration when determining the taxes you will owe on wages earned in China. (If your country of origin is other than the U.S., please search for the particulars of your country's tax treaty with China, as it may vary.)
_______________

I'm open to correction and modification on this if someone points me to some law to the contrary.

Hope some of you find this helpful. (As I said earlier, I'd sure hate to try to deal with some Chinese bureaucrat on this.) I feel a little guilty about sending this out, because I just don't know if anyone will be able to put any of this to use.

Anybody out there enjoying a full exemption of their wages from Chinese Income Tax, as a prospective employer said would be the first poster's right?