China’s tax authorities are taking special interest in the income of foreigners and wealthy Chinese amid a crackdown on tax avoidance in the country.
Wall Street Journal reports:
Local authorities have been told to step up collecting personal income taxes, which have been largely overlooked. They represent only a small share of China’s tax revenue—6.3% in the first nine months of this year, compared with 47% in the U.S. in 2013. If the tax department flexes its muscle, some people could face big bills.
[…]Most Chinese already have taxes deducted from payrolls, so they are less likely to be hit by renewed collection efforts. But nonsalary income, investment income or proceeds from stock options, which have become an important source of wealth for Chinese, haven’t been closely tracked.
Local tax bureaus have this year begun closely monitoring income that comes from stock options and grants, as well as oversea funds of wealthy Chinese (China and the US are among a small pool of countries that tax citizens’ global income).
China will also pay special attention to foreign firms operating in China to make sure the companies aren’t shifting profits to regions with lower taxes, Reuters reported, citing a Xinhua news agency report published on Monday.
The increased interest follows China’s collection of 840 million yuan (137 million USD) in back taxes from a company matching the description of Microsoft Corp last month.
While China’s tax evaders are typically fined anywhere from half to five times the amount of their underpaid taxes, foreigners could now face more severe punishment. Previously, overseas workers who were found to be underpaying their taxes only needed to pay the difference. As of this year, they may be restricted from leaving China until they’ve paid off their back taxes, WSJ said, citing a statement by Beijing’s tax authority and police bureau.