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China: Tax considerations, relocating employees in response to coronavirus

China: Relocating employees in response to coronavirus

Businesses in response to the 2019-nCoV epidemic (coronavirus) that are considering relocating employees from mainland China to work in a different jurisdiction permanently or remotely in the interim period need to be aware of potential individual and corporate tax implications of each arrangement and to consider quantifying associated cost to employees and business ahead of initiating the move.

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Individual tax considerations

An individual is likely to trigger a tax liability in the jurisdiction where that person is working, even if it is not that person’s home or primary work location. An exemption may be available by virtue of domestic concessional rules in that jurisdiction or by application of income tax treaty provisions when applicable. Often these exemptions will depend on matters such as the duration of the stay, and where the costs are borne. 

If tax liability is triggered in a jurisdiction, individuals and their employers may be subject to tax reporting and withholding obligations according to local practices in that jurisdiction.

Employers need to consider whether any additional tax cost will be borne by the company or the individual.  Consideration may need to be given to the reason that the specific location was chosen—was it driven by business needs, or from personal preference.

Furthermore, ongoing individual tax and employer withholding obligations in China may continue if the move is temporary, and double taxation may arise when the move to the other jurisdiction is extended and the employment arrangement is not updated timely.

Returning an expatriate to the home jurisdiction may be easiest from an immigration perspective, but could also have implications for the individual’s tax residence.  For example, if an employee left the home country relatively recently, the return may mean that tax residence is not considered to have been broken, creating a tax exposure back to the original departure.
 

Corporate tax considerations

An individual carrying out certain activities in a jurisdiction may trigger tax obligations for his or her employer. 

A presence in a location, depending on its duration and the activities undertaken, may trigger a corporate tax liability, business registration or registration for other taxes such as VAT/GST. Tax relief may be available if a double tax treaty applies.

KPMG observation

When reviewing repatriation or remote working plans, businesses need to take into consideration the potential immigration and tax compliance requirements triggered by such relocations.

Many of the tax issues could be “worked out later” but the cost of doing so could be significant.  There, however, are some critical items that need to be dealt with before a move.  Considering those critical issues in advance, and formulated policies and contingency plans, will allow a quicker response to the needs of the business and the individuals as those needs arise.
 

For more information, contact a KPMG tax professional:

David Ling | +1 609 874 4381 | davidxling@kpmg.com

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

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