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Tax liability in China
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Income tax liability for foreigners in China: As far as tax liability in China is concerned, you are in this country According to national law, the income earned from China is subject to tax after a stay of 90 days. If someone is resident in China and Europe, this period is extended to 183 days as a result of double taxation agreements. If your stay lasts longer than a year, you will be subject to tax in China on your worldwide income. In addition, China derives a right to tax the income of chief representatives and general managers from their position.

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Based in several countries

If a person is resident in several countries, for tax purposes he is considered to be resident in the country with which he has the closest personal and economic ties, i.e. the country in which his residence and center of life interests lie. For example, if a German employee moves from Germany to China with his family, sells his house but keeps the holiday apartment in the Black Forest, he is in principle subject to tax in both countries.

However, since he lives in China with his family, he is considered a resident there because of his personal ties. If the employee's family continued to live in Germany, it would be assumed that the center of his life would still be in Germany, which would mean that the income would have to be taxed in Germany, unless the DTA stipulates otherwise in the individual case.

Tax liability in China – regulations by the DTA

Once the question of residency has been clarified, the DBA determines under what circumstances which state may tax the income of the person concerned. Earned income is generally taxed where the work is physically performed. But there are exceptions here too:

If the actual payment of the tax cannot be proven in the case of tax liability in China, the income must be taxed (again) in Germany under German law if you continue to have a place of residence (a holiday apartment is sufficient). However, the regulations in the DTA can, in favorable cases, mean that income tax does not have to be paid in either country. For example, if an employee is sent to China by the parent company to promote the development of a subsidiary there, the income generated in this context is officially exempt from tax in China. In these cases, the German authorities are not entitled to levy taxes, even though there are no taxes in China.

Jürgen Bächle
Jurgen Bachle

has been working as an independent tax consultant and expert in international tax law since 1989 and has been a member of the board of the German Association of Tax Consultants Baden-Württemberg, DSTVBW, for over 20 years.

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