Introduction
When working or living in China for an extended period, important questions arise such as whether one becomes a "tax resident of China" and whether income from deposits, stocks, or real estate in Japan needs to be reported in China.
This issue is sometimes explained as, "If you stay in China for more than 183 days, your worldwide income will be taxed in China immediately." However, for foreigners without a residence in China, the 183-day rule alone does not determine the final scope of taxation. It is necessary to separately consider whether one qualifies as a resident individual in China and whether foreign income is actually taxed in China.
This article will focus on the points related to becoming a tax resident in China, explaining resident determination, the so-called 6-year rule, foreign income, foreign tax credits, and reporting practices.
1. What is a "resident individual" in China?
According to China's Individual Income Tax Law, a "resident individual" is defined as a person who has a "residence" in China or a person who does not have a residence in China but resides in China for a cumulative total of more than 183 days in a tax year. The tax year in China runs from January 1 to December 31.
The term "residence" here does not simply mean owning or renting a home in China. It refers to a state of habitual residence in China due to household registration, family, or economic ties. Therefore, not having Chinese nationality alone does not necessarily mean one is considered a "non-resident in China."
However, for typical Japanese expatriates dispatched from Japanese companies for a certain period, who maintain ties with their family, major assets, and return destinations in Japan, it is often considered that they do not have a residence in China, and their resident status is primarily assessed based on the 183-day rule.
The number of days of residence in China is calculated in a way that does not include days when the time spent in China is less than 24 hours in a day. Therefore, typically, the date of entry and the date of exit are not included in the number of residence days. However, the calculation of days should be verified based on individual travel records, and it is important to keep passports, airline tickets, entry and exit records, and business trip schedules organized by year.
2. Becoming a resident is not the same as being taxed on foreign income.
An individual who does not have a residence in China and resides for more than 183 days in a tax year is considered a resident individual in China for that year. According to the principles of the Individual Income Tax Law, resident individuals are obligated to pay taxes in China not only on their income sourced in China but also on their foreign income.
However, for individuals without a residence in China, important foreign income tax exemption systems have been established by implementation regulations and related announcements. If certain conditions are met, income sourced from outside China and paid by foreign corporations or individuals is exempt from Chinese individual income tax. This is generally referred to as the "6-year rule."
Therefore, the understanding that a foreigner who first stays in China for more than 183 days in a given year will automatically be taxed in China on all foreign income such as interest on deposits, dividends, rent, and other income from Japan starting that year is not accurate. First, it is necessary to confirm whether the income is sourced from outside China and who is paying or bearing it, and then consider the applicability of the 6-year rule.
On the other hand, even if the salary is paid by a Japanese headquarters, the portion corresponding to work performed in China is, in principle, considered income sourced in China. Just because the payment account is in Japan or it is paid in Japanese yen does not mean it becomes foreign-sourced income. When considering the scope of taxation for becoming a resident, it is necessary to confirm the cause of income generation, the place of work, the location of assets, and the payer, rather than just "where the money was received."
3. How is the 6-year rule applied?
For individuals without a residence in China, if the number of days of residence in China in any of the six years prior to the target year is less than 183 days, or if there is a continuous exit exceeding 30 days in any of those years, they can utilize tax exemption measures for foreign-sourced and foreign-paid income for the target year. In practice, a prescribed notification is required.
Conversely, if an individual has resided in China for more than 183 days in all of the six years prior to the target year, has never had a continuous exit exceeding 30 days during those six years, and also resides for more than 183 days in the target year, then that target year will be taxed including foreign-sourced income. In other words, if the conditions are continuously met, global income taxation generally becomes an issue starting from the seventh year.
Only the years after 2019 are used to calculate this continuous number of years. Additionally, "30 days" is not the total number of exit days in a year, but is determined by a single continuous exit period. Even if there are a total of 40 days of exit in a year, if each exit is less than 30 days, this does not reset the requirement.
Also, care must be taken not to misunderstand 30 days as "more than 30 days." Legally, the requirement is for a single exit exceeding 30 days, meaning more than 30 days is the criterion. If there is no flexibility in the schedule, it is necessary to confirm how entry and exit days are counted in advance.
Furthermore, the 6-year rule is not a system that states "after 6 years, global income taxation will apply permanently." If the number of days of residence in China in a given year is less than 183 days or if there is a single exit exceeding 30 days, the subsequent continuous years will be recalculated. However, if the exit schedule is determined solely for tax purposes, there may be inconsistencies with business, residency qualifications, social insurance, or company cost burdens, so it should be considered after confirming the types and amounts of foreign income.
4. What should be confirmed as foreign income?
If the tax exemption under the 6-year rule can no longer be utilized, or if its application is unclear, it is necessary to understand the income arising from assets and rights left outside of China. In relation to Japan, the main items to be confirmed include deposit interest, dividends from stocks and investment trusts, dividends from employee stock ownership plans, capital gains from the transfer of securities, rent and capital gains from real estate located in Japan, pensions, retirement benefits, and executive compensation.
Not everything is taxed in the same way. Interest, dividends, rental income from property, and capital gains from property are calculated as different categories of income under Chinese law. Additionally, the source of income is determined by the type of income, so the mere fact that funds were deposited into a Japanese account does not determine whether it is foreign income.
When the granting, vesting, exercising, and selling of stock options or RSUs spans both the period of employment in Japan and in China, it is necessary to consider which employment period the compensation corresponds to. Investments through foreign corporations, partnerships, or trusts can also complicate the timing of income attribution, so if long-term residency is anticipated, it is advisable to organize foreign assets before the deadline of the 6-year rule.
5. Consider foreign tax credits for income taxed in Japan
When the same income is taxed in both Japan and China, adjustments for double taxation are generally considered under the Japan-China tax treaty and the foreign tax credit provisions of Chinese domestic law. However, the amount of tax paid in Japan is not necessarily fully deducted from the tax amount in China.
China's foreign tax credit has a limit on deductions based on the country or region where the income was generated. If the tax amount from Japan exceeds the deduction limit on the Chinese side, that excess cannot be deducted in the current year, but it can be carried forward for up to five years under certain conditions. Additionally, if the timing of income recognition differs between Japan and China, or if the methods of calculating income amounts differ in both countries, double taxation may not be completely resolved.
To receive a foreign tax credit, documentation showing the total amount of income taxed in Japan, the type of income, the tax amount, and payment facts is required. It is important to keep documents such as withholding tax certificates, payment notifications for dividends, annual transaction reports, tax returns, and tax payment certificates, and to prepare them in a format that can be submitted in China. The necessary documents and the scope of Chinese translations vary depending on the type of income and the operations of the relevant tax authorities, so it is practically important to confirm this early, rather than just before the filing deadline.
According to Chinese regulations, when applying for a foreign tax credit, it is generally required to provide a tax payment certificate, payment slip, or tax payment record issued by the foreign tax authority. If it is unavoidable to submit these, there is room to proceed with the declaration of foreign income using the foreign income declaration form or tax payment notification confirmed by foreign authorities, along with the corresponding bank payment evidence. If the certificate can be obtained later, it is possible to claim deductions retroactively for that income year within a certain range, but this does not mean that the initial foreign income declaration can be omitted.
If you are considered a non-resident for income tax purposes in Japan and income tax and special reconstruction income tax are withheld on domestic source income in Japan, you may be able to use the "Application for Tax Payment Certificate for Withholding Income Tax and Special Reconstruction Income Tax" established by the National Tax Agency of Japan. This procedure involves submitting the application through the withholding agent, such as a financial institution or dividend payer, to the tax office of that withholding agent. For deposit interest, dividends from listed stocks, distributions from investment trusts, or dividends through employee stock ownership plans, the payment routes and methods of withholding may differ, so it is necessary to confirm in advance who the withholding agent is and which documents can be issued or intermediated.
6. Deadlines for declaring foreign income and practical management
When an individual resident in China earns foreign income, it must generally be declared between March 1 and June 30 of the year following the year in which the income was earned. Even if the employer withholds tax on domestic salary in China every month, this does not necessarily mean that the declaration of foreign income is complete.
In practice, it is effective to compile a list of domestic and foreign income at the end of each year, organizing the types of income, dates of occurrence, payers, sources of income, amounts in local currency, amounts converted to RMB, taxes paid abroad, and supporting documents. Especially when the Japanese tax return and tax amount determination coincide with the preparation for the Chinese declaration, it is necessary to align the schedules of both Japan and China at an early stage.
Attention is also needed for the automatic exchange of financial account information based on the CRS (Common Reporting Standard). Under the CRS, financial institutions in each country are required to report information on non-resident financial accounts to their own tax authorities, and that information is provided to the tax authorities of the account holder's country of residence. If a financial institution in Japan has registered China as the country of residence, information regarding Japanese bank accounts and securities accounts may be provided from the National Tax Agency of Japan to the Chinese tax authorities. After moving to China, it is important to check not only the address registered with financial institutions but also whether there have been any changes to the country of residence for tax purposes or taxpayer identification number.
Information that may be subject to exchange includes names, addresses, countries of residence, taxpayer identification numbers, account numbers, year-end balances, as well as interest, dividends, and other financial income depending on the type of account, and total income from the sale or redemption of securities, etc. Therefore, this could provide an opportunity for the Chinese tax authorities to understand Japanese bank interest, stock dividends, distributions from investment trusts, and securities transactions.
However, the figures exchanged under the CRS do not necessarily correspond to the "taxable income amount under Chinese law" that can be directly transcribed onto the Chinese individual income tax return. For example, the total income from sales exchanged for a securities account may not be the capital gains but rather the amount before deducting acquisition costs. Additionally, just because financial account information has been exchanged does not mean that all income generated from that account is automatically taxable in China. Actual filing obligations are determined based on the presence of an address, the 183-day rule, the 6-year rule, sources of income, payers, and income categories.
On the other hand, if Japanese financial income is subject to taxation in China, such as when the 6-year rule for foreign income exemption cannot be utilized, it is necessary to report it as foreign income in China regardless of the presence of CRS information. If one wishes to claim a foreign tax credit for the amount of tax withheld in Japan, it is necessary to prepare tax payment certificates as mentioned above. The deadline for reporting foreign income in China is June 30 of the following year, so it is advisable to confirm at the beginning of the year when annual reports, payment notifications, and tax payment certificate-related documents can be requested from Japanese financial institutions, securities companies, holding company offices, and other payers.
7. Things to Confirm Before Becoming a Resident
If there is a possibility of becoming a resident of China, first check the planned stay for the current year and the entry and exit history for the past six years. Based on that, identify the deposits, securities, real estate, stock compensation, pension rights, corporate shares, and trusts held in Japan and other countries, and organize what kind of income is generated each year.
The determination of residency in China includes a relatively clear standard of 183 days, but the actual scope of taxation is not determined solely by that. Considering in the order of "whether one qualifies as a resident," "whether one can utilize the foreign income exemption," "where each income is sourced from," and "to what extent foreign tax credits can be utilized" is fundamental to preventing underreporting and unnecessary double taxation.
*This article provides general information based on laws and published materials as of August 2026 and does not constitute tax or legal advice for individual cases. Actual handling may vary based on residency status, types of income, payers, tax treaties, and the operations of the relevant tax authorities.
Related Articles: China Business Travel Allowance and IIT Rules for Expatriates
We provide regional tax compliance and international tax advisory services for expatriates, local executives, globally mobile individuals, and Japanese residents living abroad.
View the details of our Chinese Individual Income Tax Services.