Remote work does not eliminate source analysis
Digital nomads often move between China and other countries while keeping one employer, several clients, or an offshore company. The tax analysis should begin with facts, not the location of the bank account or the country named in the employment contract. For employment income, the official Chinese guidance for non-resident individuals and individuals without domicile emphasizes the importance of the work period and the place where duties are performed when determining the source of salary and wages.
Three separate questions
Analyze these questions independently:
- Where was the work physically performed? Maintain a travel calendar showing entry and exit dates, workdays, leave, and business trips.
- Who paid or economically bore the compensation? Review the employer, Chinese entity, permanent establishment, branch, or related company that ultimately bears the cost.
- Was the individual a Chinese tax resident? Residence status can affect the scope of taxable income and the need to consider overseas income.
A person may therefore have China tax exposure even when paid by a foreign employer, while a treaty position may require additional analysis rather than automatic exemption.
Example
Suppose an engineer spends part of the year working from China for a foreign company and the remainder working from another country. The employee should prepare a day-count and work-location schedule, determine whether a Chinese entity benefits from or bears the compensation cost, review treaty residence, and assess whether China-source remuneration must be reported. If the engineer also owns an overseas investment company, the analysis should separately address dividends, retained profits, and CFC risk.
Evidence to retain
Keep:
- passport and immigration records;
- lease or accommodation records;
- employer travel and workday reports;
- payroll statements and compensation allocation schedules;
- intercompany recharge agreements;
- tax-residence certificates; and
- foreign tax payment evidence.
Planning opportunities and limits
Good planning usually comes from improving the factual record and aligning contracts, payroll, recharge arrangements, and actual conduct. It should not rely on labeling a worker as an independent contractor when the relationship functions like employment. Nor should a foreign bank account be treated as proof that income is foreign-source.
Recommended workflow
Before starting a cross-border assignment, obtain a country-by-country workday forecast and tax review. During the year, update the calendar monthly. At year-end, reconcile the calendar to payroll and travel records. If the individual becomes a Chinese resident or earns foreign-source income, add an annual foreign-income review and retain documents supporting any foreign tax credit claim. This approach is more reliable than attempting to reconstruct work locations after a tax authority inquiry.