What are the tax and visa issues that arise when an expat working in China is paid partly from the China entity’s payroll and partly from the foreign payroll? The China Law Blog has an insightful post on this.
It’s legal for an American company to have dual employment contracts, paying its American employees from both China and the United States. But if the employee works in China for 183 or more days in any calendar year, both the employer and the employee must pay tax on the combined U.S.-Chinese salary.
Here’s why tax compliance is important for visa issues: If the employee has resided in China for more than 183 days, the local tax authority may ask to review the employee’s U.S. tax return. If the employee fails to provide the it, that employee’s visa or residence permit may subsequently be refused. If the employee does provide the U.S. tax return, the tax authorities assess the tax, along with interest and penalties.
Immigration law-related compliance is of growing importance to foreign-invested enterprises in China. Foreign companies should limit non-Chinese employees’ residence in China to no more than 182 days in any calendar year, or report the combined U.S.-Chinese salary and pay Chinese taxes accordingly.