US Expat Taxes for American Expats in China

Shanghai Living

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You may leave the United States but the United States never leaves you!

The title above is especially true when it comes to the IRS. If you are a U.S. citizen and just happen to be residing abroad, you will absolutely, positively owe American expat taxes on the income which you make worldwide.

If you fit the criteria of permanent residence abroad, you will not need to file a state income tax return for the state of previous residence. Determining factors for residence are voter registration, driver’s license, bank accounts, car license plates, whether you own or rent property in the United States, the receipt of any United States utility bills for that state and more.

The United States will come looking for you unless you eliminate or reduce all signs of residency inside the U.S. California is one of the more serious states when it comes to chasing overseas people that owe taxes. The entire issue of residency is a touchy subject and should be approached delicately and by well informed individuals.

Even if you’re not a resident of a U.S. state anymore but still receive income from a business or trade, or receive income from rentals, you’ll have to pay taxes. Dividends, stock sales and interest will not be subjected to tax unless you are living in the state. Should you permanently leave the state from which you are earning a pension, that pension is no longer taxable.

When you live and work in Shanghai as an American citizen you should be updated with tax laws that apply in situations like this. This is the case where you should resort to the services of an international tax law specialist. They are the ones who should know all the legislation regarding this aspect in the life of every expatriate.

Living in USA you know what taxes you are about to pay every year, but living and working in Shanghai is a different situation. You still have to file your taxes given the fact that you earn an income and this can be done by someone who is in the States, preferably a tax law specialist.

Your status as an expatriate makes you eligible for some exemptions and for this fact, an international tax law specialist can be of a great help. All those Americans living and working in China for most part of the year should take care of filing their taxes, and at this point the specialist can step in and file only for those taxes that you need to pay. In case you are married and you need to file a joint tax for with your spouse, you must know that your spouse’s income is also exempt from taxes.

The only income that is not exempt from taxes is the one obtained from interest, property rental and dividends. The income you and your spouse earn from working abroad is exempt from tax paying according to US tax law for expatriates. It is however your responsibility to file for tax return every year and with the assistance of an international tax law specialist you can take this burden off your shoulders.

It is very important to know and understand what your exemptions are and in case you get confused on this aspect it is always recommended to consult and ask the support of this specialist. There are situations when you have paid abroad certain taxes while living and working there and as such you can claim to be exempted from those taxes when you file for you tax return back home in USA. However it is indicated to know which these situations are before you file for taxes as not all these cases apply for exemptions.

Our Partners

Our partners provide U.S. tax preparation services for non-resident Americans (expats) and Greencard holders, who must continue to file annual US tax returns, even if they are living and working abroad long term.

We are based in Shanghai, China with affiliate offices in Hong Kong and Tokyo. We specialize in providing China and Asia based U.S. Expatriates with professional tax return preparation and consulting services.

Our tax professionals are experienced American CPAs and Enrolled Agents, who have worked professionally in both the U.S. and Asia, with a focus on expatriates living in Hong Kong, mainland China, and all other areas of Asia.

Speak to a U.S. licensed CPA based in Hong Kong who understands tax implications for U.S. Expats in Asia.

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3 thoughts on “US Expat Taxes for American Expats in China”

  1. A friend of my who’s an US citizen is working in China for almost 5 yrs now on a valid work visa. She draws her salary in US$ from a company with an office in the US. She’s already paying US income tax, but the company is telling her that she also needs to pay taxes in China. Any truth to that?

    She has an option to get paid here in RMB, which means she’ll have to pay local taxes for sure, and possibly US taxes. In this case, can she deduct Chinese taxes in her US income tax filing?

    • If she makes over some small amount, she should have been paying Chinese taxes for all 5 years. (and, I’m not completely sure, but even if your wages are below a certain amount, they still need to be declared locally. The process has changed a lot in the last 2 or 3 years too.)

      US citizens are required to pay tax on ALL income, in this case, regardless of if the actual pay is in RMB.

      Chinese taxes can be claimed on US tax forms, consult the IRS and state tax publications for details. The net effect is noticeably higher taxes though, so, most ‘decent’ US companies offer a tax equalization benefit; they pay this difference.

      Once expat package benefits are included in both tax systems, the tax calculations can get complicated, and, managing things like the difference between the company paying her rent vs. her paying for it and getting reimbursed, or not reimbursed at all, can affect how much tax is paid.

      And, after 5 years, with various caveats, she’ll need to pay more in local taxes.

      If she has the means, and her company is not helping her directly, it’s probably valuable to her to get a tax/accounting firm involved.

  2. Your friend should not have to pay US federal tax if she meets the requirements for “working abroad” and does not make more than a certain amount (somewhere around USD 90,000, I think). State level income tax is another story. However, as I happen to live in a state that has no income tax, I don’t know enough to comment.

    She should be paying taxes in China. That she hasn’t after 5 years speaks volumes about the PRC tax authority. Still they are not to be messed with. Given that your friend has a valid work permit, it would not be difficult for the authorities to figure out that she is/has been working in China.

    Generally speaking, if you work abroad, are required to pay US federal income tax, and pay tax in the foreign country where you live, you can deduct the amount paid abroad from your US tax obligation. Thus, if she chooses to be paid in RMB and is taxed in China and the US, she should get credit for taxes paid in the PRC.

    This can be a very complicated matter and is often a central issue of most expat packages.

    Your friend should seek the advice of a quality tax firm to sort this out. She may owe back taxes to the PRC, but she may also be entitled to a substantial refund from the IRS.


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