Tax Tips (21) – No Tax Even If Stay in China for Over 183 Days?

183 days

The article “The Mysterious 183 Days” (10 September 2018 – Tax Tips 15) addressed the question “Is it true that there is no IIT liability if one stays in the Mainland for not more than 183 days?”. The Ministry of Finance and the State Taxation Administration of Mainland China issued two important notices on Individual Income Tax (“IIT”) on 14 March 2019, namely 《Determination of the Duration of Residence of Non-China-domiciled Individuals – Public Notice 2019 No.34》 (“PN34”) and the very complex 《Policies Regarding the Tax Treatment of Non-Residents and Non-China-domiciled Resident Individuals – Public Notice 2019 No.35》 (“PN35”), which set out a new way of calculating the days of residence in China and details of IIT computation for non-residents and non-domiciled resident individuals under different scenarios. Both Public Notices are effective on 1 January 2019. This article focuses on the implications of the new definition of days of presence in China.

The Relevant Articles on the Days of Residence

To help Readers’ better understanding of the issue, the Articles in the IIT Law and Detailed Implementation Rules relating to the days of residence are set out below.

Article 1 of the IIT Law

Individuals who are domiciled in China, or non-domiciled but resided in China for 183 days in aggregate in a tax year, are resident individuals. Resident individuals are subject to IIT on income from sources within and outside China.

Individuals who are neither domiciled nor resident in China, or who are not domiciled and reside in China for less than 183 days in aggregate in a tax year, are non-resident individuals. Non-resident individuals shall pay IIT in accordance with this Law on income derived from sources within China.

Article 4 of the Detailed Implementation Rules of the IIT Law (“DIR”)

Individuals who are not domiciled in China and resided in China for 183 days in a year for a consecutive period of not more than 6 years, upon completion of filing procedures with the in-charge tax office, the foreign sourced income that is paid by foreign entities or individuals is exempt from IIT; whenever a single trip of more than 30 days is made in the year that the days of residence reached 183 days in aggregate, the accumulation of consecutive years would start afresh.

Article 5 of the DIR

Individuals who are not domiciled in China and resided in China for not more than 90 days in aggregate in a tax year, China sourced income that is paid by the foreign employer and is not borne by a place or establishment of the foreign employer located in China would be exempt from IIT.

PN34 – Days of Residence

Article 1 of PN34 clarifies what is meant by “resided in China for 183 days in a year for a consecutive period of not more than 6 years” as per Article 4 of the DIR of the IIT Law. The provisions are in line with the general expectation.

Article 2 is more impactful. The article states that: “the length of residence of a non-domiciled individual in China in a tax year shall be calculated based on the days of presence in China. A full 24 hours-day of presence would be counted as one day of residence. Where the presence is less than 24 hours in a day, that day is not counted as a day of presence”.

Based on PN34, only a full 24-hours day of presence would be counted as a day of residence in China. This day of residence is relevant to the determination of “resided in China for 183 days” or “more than/not more than 90 days” under Article 1 of the IIT Law and Articles 4 and 5 of the DIR. The implication of this change is that it will be harder for individuals to be subject to IIT or become a Chinese tax resident, and easier to meet the conditions set forth in Article 4 of the DIR such that IIT liabilities would be reduced or even totally exempted. This is good news to non-China-domiciled Hong Kong individuals.

PN35 – Days of Work

Article 1 Para 1 of PN35 is about the determination of the source of wages and salaries. Para 1 stated that “The wages and salaries earned by an individual attributable to the working period in China are regarded as China-sourced wages and salaries. The working period in China shall be calculated according to days worked by the individual in China, which includes the actual working days in China and days spent inside or outside China for public holidays, personal vacations and training.

If the individual holds employment positions in both foreign and Chinese entities or is solely working for foreign entities, time spent in China that is less than 24 hours in a day would be counted as 0.5 days for the purposes of determining the number of days worked in China.

Why is this method of counting so different from that prescribed in PN34? Since non-China sourced income that is paid by foreign entities or individuals outside of China would be exempt from IIT, the determination of China and foreign sourced income is very important.

If a Hong Kong individual is only working for an entity in China, the days that are spent outside of China for vacation or training are all related to China employment and it is reasonable to include days spent outside of China as a working period in China, such that no days would be deducted from his China working period. On the other hand, if an individual is working for both China and foreign entities, it is reasonable that part of a day spent in China is counted for only 0.5 days as China working period.

The foreign working period is determined by deducting China working period from the calendar days of the month. The number of days worked in China and outside China would be inserted into the formulae prescribed in PN35 in determining the wages and salaries from sources in and outside China.

Double Tax Arrangement – Days of Presence

The Mysterious 183 Days” mentioned that the exemption from IIT for individuals who visit China for not more than 183 days is an effective extension of Article 7 of the old Detailed Implementation Rules of the IIT Law. Article 5 of the new DIR has basically retained the same provision. Under Article 14 <Income from Employment> of the Mainland-Hong Kong Double Taxation Arrangement (“CN-HK DTA”), the period of stay is extended from 90 days to 183 days. A Hong Kong resident would be exempt from IIT if the three conditions in Para 2 of Article 14 are all satisfied. The three conditions are:

1. the recipient is present in the Other Side for a period or periods not exceeding in the aggregate 183 days in any 12-month period commencing or ending in the taxable period concerned;
2. the remuneration is paid by, or on behalf of, an employer who is not a resident of the Other Side;
3. the remuneration is not borne by a permanent establishment which the employer has in the Other Side.

The Mysterious 183 Days” also mentioned that in counting the actual number of days for condition 1, one should include all days spent in China, including days that are not the full day such as the day of arrival and day of departure, as well as weekends, holidays, and vacation etc spent in China before, during and after the employment. Does the relaxation of counting the days under PN34 cover the 183 days in the DTA?

Unfortunately, there is no relaxation for the purposes of the DTA (notwithstanding, relaxation can be attained under Article 5 of the DIR, as to be explained further below). The days referred to by PN34 is the “days of residence”, the days referred to in the DTA is the “days of presence”. The new definition applies to “days of residence” only. Thus the counting of 183 days under the DTA has not changed.

New 183 days



According to the OECD Model Tax Convention on Income and on Capital: Condensed Version 2017, there is only one method of counting 183 days: the “days of physical presence” method, which aligns with what was mentioned in “The Mysterious 183 Days”.

PN35 listed out a number of old IIT circulars that are abolished with effect from 1 January 2019, which included the “State Taxation Administration Notice on Certain Issues in Relation to the Implementation of DTA and IIT Law for Non-China-Domiciled Individuals – GuoShuiFa (2004) No.97”. Article 1 of the circular stated that “for individuals who do not have a domicile in China, for the purposes of calculating the days of residence in China for the determination of IIT liabilities under the law or DTA, the actual physical presence days would be counted. The day of arrival, the day of departure, round-trip and multiple round-trips to and from China would each be counted as one day of presence”. The new definition of days under PN34 and the abolition of GuoShuiFa (2004) No.97 could lead some people to wonder if the method of calculating the days of presence under the DTA has also been amended.

Readers should also pay attention to the fact that Article 15 Para 2(1) of the circular “Interpretation of the DTA between China and Singapore and the Protocols – GuoShuiFa (2010) No.75” applies the same OECD method in computing the days of presence, and the article in this circular has not been abolished by PN35.

The IIT Law is More Favorable than Tax Treaty Provisions

Assuming a Hong Kong resident who is not domiciled in China and only has employment in Hong Kong. His salaries is paid by the Hong Kong employer in Hong Kong and is not borne a place or establishment of the employer in China (fulfilled the 3 conditions set forth in Article 14 Para 2 of the CN-HK DTA and Article 5 of the DIR). Starting in 2019, the individual visits China every week, Monday to Friday, and his weekly travel pattern is as follows:

Monday          Hong Kong to Guangzhou
Tuesday          Guangzhou to Hong Kong
Wednesday   Day trip to Shenzhen
Thursday        Hong Kong to Zhuhai
Friday              Zhuhai to Hong Kong
Saturday         Hong Kong
Sunday            Hong Kong

According to CN-HK DTA, the individual stayed 5 days in a week in China, and he will reach 183 days in week 37 such that he will have to report and pay IIT for his China-sourced income for the past 37 weeks. However, under Article 5 of the DIR, as none of the days spends in China is a full 24-hours day, the individual’s day of residence in China is ZERO!

This kind of situation where the local tax rule is more favorable than the DTA is not common, and is the implication of PN34. So, in this example, should the Hong Kong individual assess his IIT filing obligations based on CN-HK DTA or the DIR?

Under Article 4 of PN35 <About the Application of a DTA for Non-Domiciled Individuals>, individuals who are residents of the Other State based on the DTA provision may enjoy DTA benefits in accordance with the DTA and the relevant rules and regulations of the Ministry of Finance and State Taxation Administration, and may choose not to enjoy DTA benefits in determining the tax payable. In the above example, the Hong Kong resident seems to be able to apply the treatment under Article 5 of the DIR and PN34 in order to be exempt from IIT. Notwithstanding, it remains to be seen whether the tax office would adopt the same view.

Tax Tips

Whenever an employee is seconded to work in China or an individual chooses to be employed by a Mainland Chinese enterprise or even taking up positions inside and outside China, the IIT implications should be carefully assessed. The individual’s domicile, residency, employment inside or outside of China, the bearer of wages and salaries, the days of residence, work and presence would all affect the reporting and calculation of IIT.

Although under the new IIT law the tax rates have been reduced, more deductions are allowed and the grace period of avoiding taxation on global income has been extended, the complexity of the new IIT law has made it more difficult to comply, easier to make filing mistakes and result in increased tax risk.

On the other hand, the more relaxed days of residence calculation would encourage more people to stay in China for a longer period of time, which would make it easier for foreign enterprises to create a Permanent Establishment in China (discussed in details in “The Mysterious 183 Days”). The matter has to be handled carefully by both employers and individuals.


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(This is an English translation of the Chinese article published in the Hong Kong Economic Journal Forum on 29 March 2019: Forum 21 )


Public Notice 2019 No.34

Public Notice 2019 No.35


IIT Law Implementation Rules

CN-HK DTA!en-zh-Hant-HK?INDEX_CS=N&xpid=ID_1438402590626_001

Model Tax Convention on Income and on Capital: Condensed Version 2017

GuoShuiFa (2004) 97

China-Singapore DTA Implementation Notes

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