The Aussie Expat’s Guide to Tax in China (Without the Headache)

So you’ve landed a gig in Shanghai, Beijing or Shenzhen. The pay packet looks juicy, the adventure looks even juicier, and the dumplings alone are worth the move.

But before you start practising your Mandarin small talk, we need to have a chat about something less palatable: tax. Because here’s what nobody mentions at the leaving do. As an Aussie working in China, you’re dealing with two tax systems at once, and they don’t always play nicely together.

The good news? China completely rewrote its individual income tax rules in 2019, and once you understand a handful of key concepts, the whole thing is manageable. The bad news? Most of the “China tax guides” floating around the internet were written before that rewrite, and following them is a bit like navigating Shanghai with a 1995 street directory.

So put the kettle on. Here’s how it actually works.

Do you still need to lodge an Australian tax return?

Almost certainly, yes. The only question is what kind.

If you remain an Australian tax resident while working in China (and plenty of expats do, often without realising it), the starting point is that you must lodge an Australian return and declare your worldwide income, including your Chinese salary. China having already taxed it doesn’t change that, although you’ll generally get a foreign income tax offset for the Chinese tax paid, so you’re not taxed twice on the same dollar.

But, and this is a big but, the tax treaty between Australia and China can change the outcome entirely. Some expats end up as residents of both countries at once under each country’s own rules. When that happens, the treaty’s tie-breaker test decides which country you’re a treaty resident of. And if the tie-breaker lands you on the Chinese side of the ledger, the treaty’s employment income article generally gives China the sole taxing right over your salary from work performed in China. In plain English: that income may not need to be declared in your Australian return at all, because the treaty trumps the usual worldwide income rule.

So whether you declare every yuan, or none of them, comes down to your residency status under both domestic law and the treaty. That’s not a determination to make over a beer with a mate who “had the same situation”. It’s the foundation everything else is built on, and it’s worth paying a professional to get right.

If you’ve genuinely become a non-resident for Australian tax purposes, you still need to square things with the ATO each year, either by lodging a return (if you have Australian-sourced income like rent or certain investment income) or by lodging a “return not necessary” advice. Going quiet is not an option the ATO recognises.

And a word of warning: working out whether you’re a resident or non-resident is the single most important, and most commonly botched, part of expat tax. It’s not a box you tick. It’s a legal test based on your circumstances, and getting it wrong can cost you a fortune in either direction. For more on this, see our earlier article: Do I need to lodge a tax return while living overseas?

Who counts as a tax resident of China?

This is where the old guides will lead you astray. Since 1 January 2019, China uses a 183-day test. You’re a Chinese tax resident if you’re domiciled in China, or if you spend 183 days or more there in a calendar year. The old “one year” rule is dead and buried.

Two quirks worth knowing. First, a day only counts if you’re physically in mainland China for the full 24 hours, so the days you fly in and out don’t count. Second, China’s tax year is the calendar year, January to December, which never lines up with Australia’s July to June year. Yes, that makes the paperwork fiddly. No, there’s nothing you can do about it.

Does China tax your worldwide income?

Eventually, yes. But here’s the concession that makes China surprisingly liveable for expats: the six-year rule.

If you’re a Chinese tax resident but not domiciled there (which describes most Aussie expats), your foreign income that’s paid by foreign parties stays outside China’s tax net until you’ve clocked up six consecutive years of being resident 183 days or more. Spend a single trip of more than 30 days outside China in any year, and the clock resets to zero. Spend fewer than 183 days in China in a year, same deal: clock reset.

Here’s why this matters right now. The six-year count only started in 2019, which means the earliest anyone could trigger worldwide taxation was the 2025 tax year. If you’ve been in China continuously since 2019 without a 30-day break, you’re now squarely in the danger zone, and a well-timed long holiday home is no longer just nice, it’s tax planning. Mark it in the calendar.

One more thing: that Australian rental property of yours. Once the six-year rule bites, China can tax your worldwide income, including income the ATO is also interested in. This is exactly the kind of two-country tangle where you want a specialist in your corner, not a guess.

What are China’s tax rates?

China taxes “comprehensive income” (salary, wages and similar) on a progressive scale from 3% to 45%, applied to your annual income after a standard deduction of RMB 60,000 and any other deductions you’re entitled to. Here are the annual brackets:

Your employer withholds tax from your salary each month, much like PAYG back home. Investment income (dividends, interest and the like from Chinese sources) is generally taxed at a flat 20%.

Now for the genuinely valuable bit that most expats leave on the table. Foreign employees in China can currently receive certain fringe benefits tax-free, including housing rental, children’s education costs and language training, provided they’re properly structured and supported by receipts. This concession has been extended to 31 December 2027, and with international school fees in Beijing or Shanghai running to RMB 200,000 to 350,000 per child per year, structuring your package properly can save you serious money. If your employment contract just says “salary: X”, you’re probably paying more tax than you need to. Renegotiate before you sign, not after.

How are you taxed if you’re a non-resident of China?

Spend fewer than 183 days in China in a calendar year and you’re a non-resident, taxed only on your China-sourced income, with tax generally withheld month by month.

There’s also a short-stay concession. If you’re employed by an overseas employer with no permanent establishment in China, brief working visits don’t trigger Chinese tax, and under the Australia-China tax treaty that protection generally stretches to stays of up to 183 days. Handy for fly-in fly-out arrangements, but the day counting needs to be precise, because one day over the line changes everything.

Is there an Australia-China tax treaty?

Yes, and thank goodness. Australia and China have had a double tax agreement since 1988. Its job is to stop the same income being fully taxed twice, to decide which country gets first bite at which income, and to cap withholding taxes on dividends, interest and royalties flowing between the two countries.

The treaty contains tie-breaker rules for people who are technically resident in both countries at once, which happens to expats more often than you’d think. These rules look at where your permanent home is, where your personal and economic ties are strongest, and so on. And the outcome carries real weight: as covered earlier, if the tie-breaker makes you a treaty resident of China, the treaty can hand China the exclusive right to tax your Chinese employment income, keeping it out of your Australian return altogether. Powerful stuff, but the rules aren’t self-executing: you (or your accountant) need to know how to apply them.

When are tax returns due in China?

China’s tax year is the calendar year, and the annual reconciliation for residents runs from 1 March to 30 June of the following year. (Older guides say 31 May; that’s out of date.) Because your employer withholds tax monthly, the annual filing is a true-up: you might get a refund, or you might owe a top-up.

Filing is done through China’s official IIT app or the e-tax website, and here’s a practical tip worth its weight in gold: foreigners can’t register on the app using facial recognition, so you’ll need to visit your local tax office in person with your passport to get a registration code first. Do it early, not on 29 June.

Do you file jointly with your spouse?

No, and let’s clear up a furphy while we’re here: you don’t file jointly in Australia either. Both countries assess individuals as individuals. Your spouse’s details appear on your Australian return for things like the Medicare levy surcharge, but there’s no such thing as a joint tax return in either country. Anyone who tells you otherwise is thinking of America.

Do you have to pay social insurance in China?

In most cases, yes. Since 2011, foreign employees in China have been required to contribute to China’s social insurance system, which covers pension, medical, unemployment, work injury and maternity insurance. Your employer contributes too, and their share is hefty, often around 30% of salary on top of yours, with contributions capped at three times the local average salary.

Two things to know. First, China has social security agreements with a dozen or so countries that exempt their citizens from some contributions. Australia is not one of them, so Aussies generally pay. Second, Shanghai famously let foreigners opt out for years, but that local concession lapsed in 2021, and enforcement across China has been tightening ever since. Budget for it.

The sting in the tail comes when you leave. Unlike your Australian super, most of what’s gone into the system stays there. On permanent departure you can apply to withdraw your individual pension account as a lump sum, but that’s only your own 8% employee contributions; your employer’s much larger share sits in the pooled fund and isn’t refundable, and nor are your medical and other insurance contributions. Alternatively, you can leave the account intact in case you return (your contribution years keep accumulating), and anyone who clocks up 15 years of contributions can eventually draw a Chinese pension, even from overseas. If you do cash out, the refund is paid to a Chinese bank account only, so don’t close yours on the way to the airport. Factor all of this into your salary negotiations.

Any other taxes to know about?

A few, briefly. China’s VAT (its version of our GST) applies to most goods and services at 13%, with reduced rates of 9% and 6% for certain categories; as an employee you’ll mostly notice it baked into prices rather than as a separate line item. There’s stamp duty on certain contracts and documents, a 10% vehicle purchase tax if you buy a car, and assorted local levies. None of these should keep you up at night, but they’re worth knowing exist.

The bottom line

China can be a brilliant wealth-building posting: strong salaries, generous expat packages, and a six-year window where your foreign investment income stays out of China’s reach if you play your cards right. But it’s a system with hard edges. Day counts matter. The six-year clock matters. How your package is structured matters. And all of it has to mesh with your Australian obligations, which don’t disappear just because you’ve swapped Vegemite on toast for congee.

Tread your own path. Just count your days while you’re on it.

Two tax systems. Double the complexity.

Here’s the uncomfortable truth: most accountants understand one country’s tax system. Expats need someone who understands how two systems collide, because that’s where the real money is won and lost. Residency calls, treaty tie-breakers, the six-year rule, foreign income tax offsets… get these right and you keep thousands. Get them wrong and you donate those thousands to one taxman or the other.

Our specialist expatriate tax team works with Aussie expats who are based in China and elsewhere around the globe. We’ll tell you straight what you owe, what you don’t, and what to fix before it gets expensive.

Book a chat with our expat tax specialists today, before your your move to China, before first Chinese payslip lands, or before your six-year clock runs out. Your future self (and your hip pocket) will thank you.

General information only. This article doesn’t consider your personal circumstances and isn’t tax or financial advice. Speak to our specialist expatriate tax team today, or with another registered tax agent, before acting.

References

1. PwC Worldwide Tax Summaries, “People’s Republic of China: Individual residence” (183-day test and the six-year rule): taxsummaries.pwc.com
2. China Briefing (Dezan Shira & Associates), “Individual Income Tax in China” (residency, income categories and tax rates): china-briefing.com
3. China Briefing, “China Extends IIT Benefits on Foreigners’ Fringe Benefits to 2027” (MOF/STA Announcement [2023] No. 29): china-briefing.com
4. China Briefing, “Annual IIT Reconciliation Methods in China” (1 March to 30 June filing window): china-briefing.com
5. Australian Taxation Office guidance on reporting foreign employment income and the foreign income tax offset: ato.gov.au