There is no escaping the Great Tax Wall of China
There is no escaping the Great & lsquo;Tax’ Wall of China
Recruiters with many years experience of placing expatriates on fixed term assignments in South East Asia have long seen through dubious & lsquo;management company’ claims of global “no risk fully compliant solutions” as well as self-styled “indemnities” issued and underwritten by certain & lsquo;management companies’ with no effective legal standing. No regulated law firm or accountancy practice would ever issue such undertakings. Recruiters need to understand how “local practice” can influence the approach to compliance and, equally important, whether or not such approaches have the tacit approval of local tax offices.
According to & lsquo;ItsInternational’, it is quite common for recruiters placing expatriates in China to rely on a foreign & lsquo;management company’ (from outside China) which is expected to have carefully selected a highly competent Local Employer of Record (LER) in China to sponsor, employ and payroll the placements in line with the expectations of that LER’s local tax office.
Those & lsquo;management companies’ should now be aware that the Chinese State Administration of Taxation (SAT) has announced the release of nine new and revised Individual Income Tax (IIT) returns and associated forms which become effective on 1st August 2013.
& lsquo;ItsInternational’ understands this change in information gathering is a consequence of the Chinese SAT’s increased scrutiny on income reporting, information collection and the administration of IIT compliance for non-domiciled individuals (such as expatriate placements) working in China.
The LER now has to include:
each placement’s 18-digit identity registration
the exact period of their secondment or assignment
their expected departure date
your placement’s domestic and overseas positions
the country or area from which your placement is paid
their work permit number
whether or not your placement is a tax resident of a country which has concluded a tax treaty with China.
The Chinese SAT is likely to scrutinize IIT returns more closely. & lsquo;ItsInternational’ strongly recommends recruiters to review their current procedures for checking IIT compliance and be certain the Local Employer of Record (which could be either the recruiter or its appointed LER or its management company or their appointed LER) is taking whatever steps are necessary to fully embrace the required level of compliance and reduce any risk of associated non-compliance.
Any agency not in possession of evidence of due compliance in China rather than simply taking the word of a service provider could face issues with their client as well as their placements. As all responsible recruiters know, this principal is valid globally.