Chinese taxes for the overseas translator

[roddy]

You might want to fall asleep now, it'll save time...

 

Those of you who are based overseas but do work for Chinese clients - are you getting taxed before the money leaves China, and are you claiming tax relief under dual taxation agreements? Do you have any documentation to back up that claim if needed? Or have you been able to persuade clients to pay you gross? 

 

This hasn't bothered me previously as I only have small now-and-then jobs from China,but I might be picking up something more substantial and I'm just wondering how people handle it. My reading of the UK's agreement (Art 14 seems to be the right one for translators) is that tax should ONLY be paid in the UK. However I'm encountering resistance of the 'we would have no choice but to withhold this' variety. So then I should claim relief here in the UK, but I'd want something written to back that up. I don't fancy my chances of getting anything directly from the tax authorities. Can a client provide an official statement of tax paid from the authorities? If so, what exactly is it called in Chinese? Or would a statement of 'Roddy earned 5,000Y and we withheld taxes of XXXX' suffice?

[onebir]

I suspect you'll need a certificate with some official stamps/codes - otherwise too easy to fake & pay reduced tax on foreign source income.

 

Probably best to confirm with HMRC

https://www.gov.uk/government/organisations/hm-revenue-customs/contact/income-tax-enquiries-for-individuals-pensioners-and-employees

[Lu]

I only worked for a Chinese client once and they paid me in full, in cash. This was for a big official institution and I never heard a word of them withholding anything. Same for a Taiwanese client: semi-official institution, insisted on an invoice from me (I had one prepared already), paid me in full, in cash, without a word of withholding anything.

 

You could try pushing back yourself, stating that you will do the job for x amount, and if they want to pay taxes they need to make sure you still receive x amount and the Chinese taxes are on their dime. Especially if you have the relevant British laws to back this up.

[roddy]

Initially at least I can just write numbers in on a form and the HMRC will take those at face value. They're actually pretty good at that, I once got a big chunk of money back from them by writing a letter saying I'd made a mistake, could I have my money back please. However I would want something on paper in case they decide to check up on me further down the line. Under the circumstances I might be happy with a statement from a Chinese client saying what's been withheld and why - a payslip, effectively - rather than anything from the tax authorities themselves.

 

However strictly speaking they shouldn't be taxing me at all, that should all be happening here. However the chances of getting a client's accountant to explain that to the local tax bureau and winning seem slim....

[Lu]

This is just general common sense so I might be wrong, but I think that the British tax bureau will rightly demand you pay taxes at home, no matter what you may or may not have paid elsewhere, since the UK is where you enjoy roads, police, schools and other things that are paid from your taxes. Similarly, China shouldn't ask you to pay tax because you're not enjoying their tax-paid amenities.

 

I think your client's accountant will make a much bigger effort if it's the client's money on the line instead of yours. (Hence my first idea of let them pay taxes if they want, but let them still pay you the full amount of what you want to be paid.)

 

This is probably not all that helpful, so I'll stop replying now and make room for others.

[roddy]

I entirely agree with the common sense thing, and that's the intent of the dual taxation agreement. However this doesn't appear to have filtered down to the grassroots, unfortunately. And just my luck to have clients who (claim to) pay taxes...

[Lu]

(Not keeping my word...) Now that I think of it, it's still weird. If you're in China and hire a translator who is also in China, you can specify if you want a fapiao or not, and if you do, the price is higher because the translator has to pay taxes. Not the client. (I have been the client in this scenario.)

 

Yeah, I think you're totally justified in asking for some kind of pay slip with lots of stamps. If they're so good with their taxes, they should know all about how to make such a note.

[zhouhaochen]

@Lu: the thing about asking for a Fapiao is standard practice in China, however it is actually not legal. As a company you are required to always provide a Fapiao and the cost of that Fapiao needs to be included in the price. If a company chooses to not do so (as is standard practice in China) this is because tax enforcement in China does not properly work.

 

@roddy: what exact taxes are we talking about? VAT (Fapiao/增值税）, income tax (个税) or part time work tax (劳动税)?

[Lu]

the thing about asking for a Fapiao is standard practice in China, however it is actually not legal. As a company you are required to always provide a Fapiao and the cost of that Fapiao needs to be included in the price. If a company chooses to not do so (as is standard practice in China) this is because tax enforcement in China does not properly work.

Yes, that's true of course, and I was aware of that. Should have included in that post that not asking for a fapiao effectively means that you're helping the person you're hiring dodge taxes. (Which is why I always asked for a fapiao.)

 

Roddy, did you manage to resolve this?

[889]

Americans who need a letter certifying they are a US resident in order to claim withholding exemption under a tax treaty can get one from the IRS, but it's not free.

[roddy]

Still plugging away at this. Client seems keen to help but is understandably unfamiliar with what's going on and has come up with a list of various forms and documents annotated with 'I don't have this', 'I can try and find one', 'hard even for Chinese to get', etc. I suspect they're on a path that would result in an annual summary, when all I want is, basically, a payslip.

 

Think it might be time to bite the bullet and consult an accountant here - if they're happy to sign off on accounts on the basis of a *company* statement that taxes have been paid, I'm probably good to go. I can also try to ask the HMRC, but not entirely sure how keen they are on 'what can I get away with' questions. 

 

Zhouhaochen, I believe it'd be classed as 劳务报酬所得 and taxed accordingly, but as I don't currently have any documentation or even a calculation, I don't know. 

[Kenny同志]

I think you might be looking for a piece of 代扣稅證明. If you choose to ask for the 證明, you will have to do so every time you complete a task, which can be a bit of a hassle especially if you work for the client regularly.

 

I agree with Lu. You can increase your rate so that after taxation, you will still receive an amount you are happy with, i.e. an amount based on your current rate without anything being withheld.

[889]

I don't know specifically the rule in the U.K. but I know the general rule in most tax jurisdictions. And under that rule, you can claim relief or tax credit on foreign taxes you've paid only if you had a final legal obligation to pay them. And if you could get a refund or avoid withholding by simpy filing a form with the foreign government, then you didn't have a final legal obligation to pay the withheld taxes.

 

Point is, don't assume that simply because taxes were withheld in China that you'll be able to get corresponding tax relief from the U.K.

[roddy]

Still working on this...

 

1) Spoke to an accountant here who said if I want to try and use a company statement to claim tax relief, it's my lookout, but she would expect HMRC to insist on something from the tax bureau. She's trying to clarify that. 

2) Someone from the client went down to the tax bureau to find out if I can not pay tax. Brilliantly, they've said I can only not pay tax if I either have lived in China for half the year or have a business office in China. Which are exactly the conditions under which, according to the tax treaty, I DO have to pay tax. So that clarifies nothing. What I suspect has happened is there was some confusion when the question was asked (which is happening at least third-hand from me) and the tax bureau understood it as 'can this guy not pay tax on each individual payment but rather get paid gross, then file a tax return annually.' and answered 'yes, if he's resident or has a business presence, and then we'll tax him when he files that return.' So fundamentally that was no help at all. 

 

Client has however said they'll try and get proof of tax paid per payment, which seems as much as I can hope for at this stage. I'll do some work for them and see what happens - if I end up paying tax twice on one batch of work it won't be the end of the world. 

 

889 raises an interesting point, which I'm going to have to ignore for now....however it may be a problem: From the HMRC 

"If the agreement does not give the other country or territory the right to tax the income, you can’t claim FTCR and must claim relief in the other country."

[889]

"If the agreement does not give the other country or territory the right to tax the income, you can’t claim FTCR and must claim relief in the other country."

 

That is precisely the point. If income is exempt from taxation under the UK-China Tax Treaty, then you have to file the necessary forms in China to stop withholding, if that's possible, and get any withheld taxes refunded to you. You can't get relief on your UK tax return.

 

Do you see the logic here? Under the tax treaty, the UK has the right to tax that income, not China. But if you don't act to stop withholding or get a refund, then you're effectively letting China tax the income when you claim tax relief in the UK, and the UK revenue is losing out, contrary to the terms of the treaty. It's not like the Chinese and UK governments settle up behind the scenes.

[roddy]

Yeah, it makes sense. Will add this extra complication into the mix....

[Kenny同志]

How much do they ask you to pay, Roddy? I was told today by a Beijing-based agency that part-timers and freelancers need to pay 25% of their remuneration as personal income tax(robbers!). They have ways to avoid the tax but the rule is outrageous.

 

One way, they told me, was to pay their freelancers on instalments--part-timers and freelancers who earn 800 yuan or less do not need to pay the tax. So if you don’t mind the time it will take, you can consider the option.

 

 

Edit: Also, you can ask them if they have any way to avoid the tax legally.

[roddy]

They've actually now agreed to pay me gross. I don't think they've cleared this with the tax bureau - the response came back too quickly for them to have consulted again. Either they're going to worry about that later and we'll see what happens, or they're paying me off the books. I had to write an email taking them line by line through the dual tax treaty to get this far. 

 

I also got advice back from the accountant here, saying that I could claim relief with " copies of the tax payment certificates that are issued by the China tax bureau"(implying the concerns 889 raised aren't an issue). Intriguingly, she said it would be "difficult to substantiate" claims without such documentation, rather than outright impossible or illegal, meaning there's hope for anyone who can't prove tax was paid. 

 

I'm not sure paying the legally required taxes is robbery, Kenny. Just feels like it... but yes, I think the 劳务所得税 only kicks in on payments of over 800Y, so I guess keeping payments below that would work. Is there any obligation to declare overall annual income to the tax bureau though? I have no idea how this works.

[Lu]

They're paying gross - hurray, success! After all this mafan I sure hope they'll have a lot of work for you at least.

[roddy]

Fingers crossed. Spent ages talking to a client with LOTS of imaginary work earlier this year...