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China: Tax on overseas income received by resident taxpayers

China: Tax on overseas income, resident taxpayers

The Ministry of Finance and the State Taxation Administration in January 2020 jointly issued guidance that sets out the relevant policies regarding income earned overseas by individuals who are residents of China.

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The guidance is Announcement 3 of 2020, and is known in English as the “Announcement on individual income tax policy in relation to overseas income.” The rules provided in the Announcement 3 apply from the 2019 tax year.

A brief overview of the main contents of the guidance is as follows.

  • Classification of overseas income – the guidance provides income categories considered to be overseas income along with the basis of income sourcing.
  • Calculation of taxable income – resident individuals must determine their China and overseas sourced taxable income based on two methods: (1) domestic and foreign income subject to consolidated tax calculation, and (2) domestic and foreign income subject to separate tax calculation.
  • Method for calculating credit against foreign taxes – if resident taxpayers receive overseas income during a tax year, a foreign tax credit will be granted when foreign income tax has been paid in the overseas location in accordance with the tax law in that jurisdiction, subject to certain limits. However, a foreign tax credit may not be allowed in certain circumstances.
  • Administrative requirements – overseas income reporting and foreign tax credit claims, tax withholding and reporting requirements for outbound assignees, and other administrative requirements (e.g., legal obligations and foreign currency conversion) are provided in Announcement 3.


KPMG observation

Announcement 3 is viewed as an improvement on China’s individual income tax policy concerning overseas income received by resident taxpayers. The guidance also clarifies the rules for foreign tax credit claims. In general, Announcement 3 complements the recent individual income tax reform and resolves transitional issues.


For more information, contact a KPMG tax professional:

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

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