In China, the five years tax policy is a vital tax rule. It is used for determining if a foreigner or an expatriate working in China is to total tax liability in China. Where both earned and other global income of the individual in China are subject to tax in China.

Regarding the five-year tax policy, an individual who has been domiciled in China for five full consecutive years shall qualify as a resident. Thus, the earnings for the sixth full year and beyond shall be subject to tax liability in China. A full fiscal year in china is counted from January 1 to December 31.

There are, however, some clauses to this policy that should be highlighted:

• An individual shall not be considered a tax resident in China if, within five years, the individual stays out of China for 30 consecutive days. 
• Where an individual stays for 30 consecutive days outside of China, the five-year tax policy is deemed to have been interrupted and expected to restart from zero. This shall also be applicable where an individual stays for 90 cumulative days within a fiscal year.
• Should the individual spend less than 90 days during the sixth year or anytime beyond after the five years in China, the earnings shall not be subject to tax. However, as previously noted, the entire 6th-year earnings shall be subject to tax.  

Expand into China without setting up a company, by employing or relocating key staff to take a first step in exploring the market. A professional employer organization (PEO) service can act as the official employer of record (EOR) for your staff in China while you expand your business. With the support of our trusted partner network, we can facilitate local hiring and employment without the time and cost of setting up a legal entity in country.

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