Income Tax in China for Expats
Americans venture out into the world for a variety of reasons. Some go as students, while others are temporarily transferred by their companies to foreign branch offices. Many Americans work abroad as English instructors, and some US athletes even bolster their professional careers through stints with Asian or European teams. Whatever takes them abroad, US expatriates can be seen as informal ambassadors experiencing daily life alongside locals, doing much to broaden horizons and bring people together.
If you’re a US expat, you will still need to file your taxes in the US. Read our guide on income tax in China for expats and the US-China income tax treaty.
While living and working as an American abroad can be a great adventure, it's not all fun and games. There is still the fairly important matter of filing your US income tax return each year. A case in point is when you move to China. Even if you're not physically present in the United States, the Internal Revenue Service (IRS) still expects reports on income tax in China for expats, just like for the income taxes of everyone else back home. What does this mean for you?
Why US Expats Still Need to File Tax Returns
The United States is one of just two countries on the planet that bases income taxes on citizenship rather than residence, and the US is the only country that requires you to file a tax return regardless of where you reside. So, even if you're working in China, earning yuan, and paying Chinese income taxes, you are still obligated to file a US income tax return each year if you earned more than the equivalent of $12,000. This threshold may change from year to year.
It doesn't matter where you are or what currency your income is paid in — if you're an American citizen or US permanent resident, a US tax payer or a Green Card holder you must dutifully file your US income tax return every year.
Tax Help for Expats in China
The deadline to file your taxes in the US is April 15, but if you're living in China (or anywhere else outside of the US), you generally have an extra two months — until June 15 — to file your US income tax return. Even with that extra time to file, if you wish to avoid being charged interest, you must still pay any taxes owed by April 15.
Which forms do you need to file?
Here’s a list of tax forms you need to complete and send when you’re an expat in China (or any other place in the world).
- Form 1040: the standard form all US citizens and permanent residents must complete.
- Under certain circumstances, you can also file Form 2555, which qualifies you for the Foreign Earned Income Exclusion and a Housing Exclusion.
- Ineligible to file Form 2555? You’ll need to file Form 1116 to claim a US tax credit on Chinese income under the US-China income tax treaty.
If you have a foreign bank account, you will need to separately file FinCEN Form 114.
In addition to filing your US income tax return, you must also meet your Chinese income tax payment and filing obligations. The tax filing window in China is between March 1 and June 30 — and they do not offer extensions to anyone. If you’re late, you will be penalized. Failing to comply with Chinese income tax laws and policies could also result in complications when you try to leave the country, so it is incumbent on you to stay on top of things.
Is There a US-China Income Tax Treaty?
You might be wondering if all these tax filing obligations for both the US and China mean expats have to pay income taxes twice. This is a valid concern, but US expats are generally protected from double taxation through the Foreign Earned Income Exclusion on the first $107,600 earned abroad, as well as bilateral tax treaties.
An income tax treaty between the US and China has been in effect since the 1980s — and this is to your advantage. Individual circumstances may vary, but due to this tax treaty, the vast majority of Americans and US permanent residents working in China are able to claim a US tax credit on Chinese-sourced income. In the same way, Chinese citizens can also claim a Chinese tax credit on US-sourced income.
Consult with an Experienced Tax Law Professional
Doing your taxes on your own as an expat can add more layers of confusion and stress to an already complicated enough process. Jason Kovan, International Tax Attorney and CPA who is the Managing Partner at Tax Law Expats, and his knowledgeable team are experts on income tax in China for expats and how tax law and tax structures elsewhere can affect US expats. Tax Law Expats is an invaluable resource for expats who want their taxes done right, so whatever your circumstances, get in touch with them today and get the answers you need.