Important changes ! New rule on 183 days of tax residence in China

Important changes ! New rule on 183 days of tax residence in China

On March 14, 2019, the Ministry of Finance and the State Administration of Taxation jointly issued the Notice No. 34 of the Ministry of Finance and the State Administration of Taxation 2019, on the Judgment Standards for Individuals’ Living Time without Residency in China (hereinafter referred to as the “Announcement”).  The Announcement is effective retroactively from January 1, 2019.  The main contents are as follows:

1. If a non-domiciled individual resides in China for 183 days or more in a tax year, and in each of the preceding 6 years without being absent from China for more than 30 days, his income sourced from and outside China in that tax year shall be subject to individual income tax. If the accumulated days in China in any of the preceding 6 years is less than 183 days or a single departure is more than 30 days, his income sourced outside China is exempt from individual income tax.

The first preceding 6 years refers to the six consecutive years ending on year 2018.

2. The days in China of a non-domiciled individual residence within one tax year shall be calculated based on the number of days an individual has accumulated in China. If the stay in China is exactly 24 hours a day, it will be counted as 1 day.  Any stay less than 24 hours will not be counted.

What impact does the Announcement have on foreigners after its implementation?

1. Changes in the conditions for foreigners to enjoy tax exemption for overseas income

The new individual income tax law will adjust the time criteria for individual residents from one year of domestic residence to 183 days.  In order to attract foreign investment and encourage foreigners to work in China, the new Individual Income Tax Law Implementation Regulations continue to retain the original regulations for overseas payment.  The overseas income is exempt from the taxation system which further relaxes the tax exemption conditions:

Firstly, the tax exemption conditions will be relaxed from less than five years to six consecutive years;

Secondly, as long as there is one departure more than 30 days in any year, the continuous residence period is recalculated; and

Thirdly, the management method which is changed from the competent tax authority to the record, simplifies the process of tax reporting.

The Announcement also clarifies that the day of stay in the territory less than 24 hours is excluded from the number of days of residence in the country; the period of continuous residence “full six years” is calculated from January 1, 2019, and the period before 2019 is no longer included.

2. Calculation of the number of days in which foreigners (including Hong Kong, Macao and Taiwan residents) live in the territory

According to the Announcement, a residency day is counted only if an individual stayed in China for exactly 24 hours a day, otherwise, the days staying in China is not counted.

For example, Miss Zhou is a Hong Kong resident who works in Shenzhen.  She comes to work in Shenzhen every Monday morning and returns to Hong Kong on Friday night.  On Mondays and Fridays, the stay is less than 24 hours, so the number of days in the country is not counted.  Thus, the day of stay per week can only be counted as 3 days.  Calculated in 52 weeks, Miss Zhou’s domestic residence in the whole year is 156 days, which is less than 183 days.  It does not constitute a resident individual.  All overseas income obtained by Miss Zhou is exempt from personal income tax.

3. Foreigners (including Hong Kong, Macao and Taiwan residents) continue to live in the country for “full six years”

According to the Announcement, the “continuous six-year” period in which the domestic residence has accumulated for 183 days starts from the year 2019 (inclusive), and the year in which it has been inhabited before 2018 (including) is cleared.  According to this regulation, before 2024 (inclusive), all non-residential individuals have lived in the country for less than six years, and their overseas income obtained from overseas payment can enjoy tax-free concessions.  In addition, if there is a single departure for more than 30 days in any year from 2019, the previous consecutive years are “cleared” and recalculated.

For example, Miss Li is a Hong Kong resident.  She came to work in Shenzhen on January 1, 2013 and returned to work in Hong Kong on August 30, 2026.  During this period, she returned to Hong Kong temporarily from February 1 to March 15, 2025.  In addition to handling official duties, the rest of the time was in Shenzhen.

Miss Li lived in China for a total of 183 days.  If her residency is calculated starting from 2013, she would have completed six years tax residency in China. However, the period before 2019 is “cleared” according to the Announcement. Therefore, from 2019 to 2024, Miss Li lived in China for a total of 183 days in a row less than six years, and her overseas income obtained from overseas payments for the said period should be exempted from individual income tax.

In 2025, Miss Li had been living in the territory for 183 days in a row for six consecutive years (2019-2024), without a single departure more than 30 days.  In this case, Miss Li should pay individual income tax in 2025 on income, no matter onshore and offshore China.

In 2026, due to the fact that Miss Li had a single departure in 2025 for more than 30 days (February 1 to March 15, 2025), her continuous residence in the Mainland for 183 days was cleared, and day of stay is recounted in 2026.  As a result, her foreign income from overseas payments for the year 2026, should be exempted from individual income tax.