The Taxman Cometh

Knew it would happen someday and it’s beginning this year: China’s taxman is going after Chinese nationals worldwide for income tax.  China is now the second nation after the US to tax based on citizenship not residency.  China is bearing down on nationals earning large incomes overseas as it prepares for increasing social security budgets in the coming decades.

———-

When the political leaders of the People’s Republic of China decided to modernize the country’s federal tax system in the early 1990s, they carefully examined the rules in place in other counties. They eventually concluded their empire-building ambitions would best be served by adopting the key design features of the IRC — including citizenship-based taxation of personal income.

Yet for the past 20 years, China’s State Administration of Taxation (SAT) has declined to enforce this rule. As a result, Chinese expats have grown accustomed to not paying Chinese income taxes on their foreign salaries. The government’s failure to apply the law has been attributed to limited organizational resources inside the SAT and the non-availability of pertinent income data from private employers. It’s also been suggested that by going soft on expats, the government indirectly promotes the expansion and global influence of Chinese firms.

Whatever the case, Beijing is no longer looking the other way. Beginning in 2015, the government expects all Chinese citizens residing abroad to include their foreign salary and wages in taxable income. Why the change? The best answer appears to be that the Chinese government needs the money to meet its spending needs.

Viewed in isolation, this development could easily be overlooked. But when considered alongside other recent steps, it seems clear that China’s central government is newly emboldened when it comes to revenue collection. As this trend continues, it wouldn’t be surprising to see China’s tax framework become more like America’s with each passing year.

Forbes