International tax (IT) refers to the framework of laws and regulations that governs how individuals and enterprises are taxed on income derived from cross-border transactions. With increasing globalisation, the importance of international tax structuring and compliance has grown substantially. Key elements include Double Taxation Agreements (DTAs), Foreign Tax Credits (FTCs) and Cross-Border Withholding Tax (WHT), among others. These mechanisms address the complexities of taxing income across multiple jurisdictions, ensuring fairness and avoiding double taxation.
- DTA: Bilateral treaties that allocate taxing rights between countries
- FTC: Allows taxpayers to offset foreign taxes against domestic tax obligations
- WHT: Ensures tax is withheld at the income source before remittance, commonly applied to cross-border transactions to ensure tax compliance.
1: Double Tax Agreements (DTA)
DTAs help prevent the income from being taxed by both the source and residence countries. This is crucial for enterprises and individuals engaged in cross-border transactions, as DTAs clarify tax obligations and ensure income is taxed only once, either where it is earned or where the taxpayer resides. For example, a DTA may stipulate that dividends paid by a company in Country A to a resident of Country B are taxed solely in Country B or at a reduced rate in Country A.
However, navigating DTAs can present several challenges. Firstly, the content of these agreements is often complex and varied, requiring specialised knowledge and experience to accurately interpret and apply the specific terms. Additionally, different types of income may be subject to varying tax treatments, making it difficult to determine whether a particular income stream qualifies for DTA benefits. Furthermore, compliance requirements can differ significantly across jurisdictions, and companies are typically required to prepare detailed documentation to support their DTA claims. To address these challenges, applicants should thoroughly assess the applicable DTA and analyse its specific implications on their tax liabilities.
2: Foreign Tax Credit (FTC)
Under many DTAs, the FTC is a tax mechanism designed to prevent double taxation. It allows taxpayers to offset taxes paid in foreign jurisdictions against their domestic tax liabilities. This mechanism supports international investment by ensuring that income earned across borders is not subject to excessive taxation, thereby protecting taxpayers' interests and promoting healthy global economic engagement.
Despite its advantages, applying for FTC presents several challenges. Calculating the allowable tax credit can be complex, particularly when dealing with multiple income sources and varying tax rates across jurisdictions. Taxpayers must also comply with their home country’s tax rules, including caps on the amount of tax credit that can be claimed. Additionally, discrepancies in tax definitions and classifications between countries can lead to disputes over eligibility. For instance, certain payments may be classified as dividends in one country but treated as interest in another, complicating the calculation of tax credits.
International tax services, including the use of DTAs, play a critical role in addressing these challenges. Local regulations and tax practice also provide guidance on optimising FTC utilisation, such as carrying forward unused credits to future tax years.
3: Withholding Tax (Cross-Border Tax)
Withholding tax (WHT) is a tax levied on income earned by non-residents in a particular country and generally applies to both active income (e.g. service fees) and passive income (e.g. dividends, interest and royalties). WHT is a critical component of cross-border taxation, as it ensures that non-residents contribute to the tax base of the country where the income is generated.
One of the main challenges of WHT is navigating the complexity of tax obligations, particularly in determining the applicable rates and exemptions. While DTAs often offer a reduced or eliminated WHT rates, the specific provisions vary significantly between countries. Additionally, businesses must manage the administrative requirements associated with WHT, such as filing tax returns and obtaining tax residency certificates, adding to their compliance burden.
Conclusion
International tax mechanisms provides valuable strategies for optimising tax outcomes for enterprises and individuals. DTAs facilitate cross-border transactions by minimising double taxation, thereby encouraging multinational corporations and investors to engage more confidently in international trade, ultimately stimulating global economic growth. The FTC provides tax relief for those operating or investing abroad, ensuring fair tax treatment and reducing potential disincentives. Meanwhile, withholding tax remains an important tool for ensuring tax compliance on cross-border income flows, enhancing transparency and mitigating tax risks.
A deep understanding and strategic application of these international tax tools enable enterprises to manage their tax obligations more effectively across borders, driving sustainable growth and success.
Global Mobility Service
Global Mobility (“GM”) refers to the movement of people, talent and resources across borders for various purposes, including international job assignments, education and lifestyle choices.
In an era of globalisation, enterprises increasingly leverage GM strategies to drive business growth, expand into new markets and enhance competitiveness. GM encompasses a wide range of activities and policies designed to facilitate and manage cross-border mobility. A key consideration for both individuals and enterprises involved in GM is taxation, which can be complex due to differing tax treatments across jurisdictions, potential double taxation and local compliance requirements.
1: Employment Arrangements
Many enterprises implement GM programs to facilitate international employees relocation in support of global business operations. These arrangements may include:
- long-term job assignments
- short-term job rotations
- International remote work arrangements
When structuring GM programs, enterprises must address not only tax implications but also immigration laws. Countries vary widely in their visa requirements, residency policies and work permit rules, all of which impacting employee mobility.
2. Complex PRC Tax Environment
Although China's tax policies are centrally governed, interpretations and enforcements may differ across local tax authorities, introducing additional risks for businesses relocating employees to or from China. Ensuring compliance with PRC tax regulations, including income reporting, tax withholding obligations and application of double tax agreements (DTAs), is essential.
Key Tax Considerations in China:
PRC Tax Residency Rules and Implications:
- Tax residency in China is assessed based on the structure of the GM arrangement and the individual’s physical presence. An expatriate who stays in China for more than 183 days in a full calendar year will be considered a China tax resident. Otherwise, the individual is treated as a non-resident taxpayer.
- Regardless of citizenship, both residents and non-resident are taxed on income earned for work performed in China. This income is regarded as China-sourced income regardless of whether the payment is made within or outside the country. China-sourced income is subject to Individual Income Tax (IIT) if it is either borne by a China entity or the individual’s presence in China exceeds a specified threshold under the applicable tax treaty.
Double Tax Agreement (DTA):
- With over 3,000 tax treaties in force globally, DTAs aim to prevent double taxation and provide clarity on cross-border tax responsibilities. For example, if a Chinese citizen is assigned overseas for on assignment, he or she is still required to complete the PRC’s annual IIT declaration on their worldwide income, including overseas salary income earned. However, foreign taxes paid may be credited against their PRC tax liability to avoid double tax.
3: Tax Costs of Globalisation Strategies
Deploying key employees to overseas markets is essential for business expansion. However, the complexities of IIT management can lead to significant tax costs for both enterprises and employees.
Employees may be concerned with their “net income” and potential double taxation under GM arrangements. While DTAs offer some relief, their proper application is technically demanding and may not fully eliminate tax burdens. Enterprises must therefore design reasonable tax-efficient structures that preserve employees’ take-home pay while offering attractive benefits to retain talent, without incurring excessive costs.
Additionally, GM programs involve a large volume of employee data, including payroll, benefits and tax information. Ensuring data accuracy and timely reporting is vital to meet local compliance requirements. Under the Base Erosion and Profit Shifting (BEPS) framework promoted by the Organisation for Economic Cooperation and Development (OECD), tax authorities have heightened their compliance demands on cross-border taxation.
Conclusion
Managing IIT effectively has become a critical component of successful GM strategies. With our extensive experience and integrated service approach, we are dedicated to helping enterprises optimise their IIT management, mitigating compliance tax risks and supporting employee satisfaction. Our goal is to help our clients focus on their core business while maximising the strategic value of global talent mobility.
If you would like to learn more about our Global Mobility services, please feel free to contact us. We would be glad to provide you with tailored solutions that meet your needs.
China Updates
Accounting and Taxation
Adjustments to VAT Returns
Announcement [2025] No. 2 of the State Taxation Administration (STA)
To further improve the efficiency and quality of VAT return services and management, the STA has announced adjustments related to VAT returns:
Tax authorities will provide export goods information data collection services for taxpayers subject to VAT levying policy. When filing VAT returns for exported goods to which the VAT levying policy applies, taxpayers shall log into the national unified and standard electronic tax bureau to confirm the purpose of the export goods information data.
At the time of confirmation, taxpayers engage in the re-export of goods processed with imported materials are required to fill in the amount of bonded imported materials and parts consumed in the corresponding exports.
In accordance with relevant policy provisions, the VAT and Additional Tax Returns (Applicable to General Taxpayers) and the corresponding information filling instructions, and the VAT and Additional Taxes Prepayment Form and its attached information filling instructions, shall be adjusted accordingly.
STA Announcement on Matters Relating to the Certificate of Chinese Tax Resident
To support high-level opening-up, the STA issued an announcement on matters related to the Certificate of Chinese Tax Resident (“TRC”) on January 26, 2025.
The key points of the announcement are listed as follows:
- Enterprises or individuals may apply to their competent tax authority for TRC in any calendar year in which they qualify as Chinese tax residents.
- The following entities cannot apply for the TRC directly and shall follow the respective procedures below:
- A domestic and overseas branch of a Chinese resident enterprise: The application shall be submitted by the Chinese head office to the competent tax authority of the head office.
- A domestic individually-owned business: The application shall be submitted by the Chinese resident owner to the tax authority at the place where the business is managed.
- A domestic sole proprietorship: The application shall be submitted by the Chinese resident investor to the tax authority at the place where the enterprise is managed.
- A domestic partnership enterprise: The application shall be submitted by the Chinese resident partner to their respective competent tax authority.
- Where the competent authority of the other party has special requirements for the format of the TRC, the applicant shall provide a written explanation along with the required format. The competent tax authority may then process the application in accordance with the above provisions.
- This announcement is effective as of April 1, 2025.
Human Resources
Guiding Opinions on Promoting Compliance Awareness and Strengthening Compliance Management in Small and Medium sized Enterprises
On March 13, 2025, the following departments jointly issued guiding opinions on strengthening compliance management in small and medium-sized enterprises (SMEs) - General Office of the Ministry of Industry and Information Technology, the General Office of the Central Propaganda Department, the Secretariat Bureau of the Central Cyberspace Office, the General Office of the Ministry of Finance, the General Office of the Ministry of Human Resources and Social Security, the General Office of the Ministry of Ecology and Environment, the General Office of the Ministry of Commerce, the General Office of the Emergency Management Department, the General Office of the People's Bank of China, the General Office of the Market Supervision Administration, the Office of the China National Intellectual Property Administration, the General Department of the State Administration of Foreign Exchange, the General Office of the All-China Federation of Trade Unions, the General Office of the All-China Federation of Industry and Commerce, and the Office of the China Council for the Promotion of International Trade.
Requirement:
By 2030, the compliance development environment for SMEs will be further optimised, and a basic compliance service system will be established. Enterprises will be expected to develop compliance awareness and abilities in line with high-quality development requirements. The level of lawful and compliant operations will be significantly improved, and compliance will become an important component of SME’s core competitiveness.
Key Areas of Compliance Management:
In clarifying the key areas of compliance management, labour and employment compliance is emphasised. SMEs are guided to: comply with labour laws and regulations, establish and improve labour and employment management systems, and define clear management requirements for the introduction, development, utilisation, training, assessment, incentives and exit of human resources.
Enterprises are to Implement the labour contract system, comply with relevant employment and labour supervision requirements, and ensure that employees receive due labour remuneration, enjoy rest days and leave entitlements, participate in social security schemes, receive vocational training and enjoy other legitimate rights and interests. Employers shall also provide employees with necessary safeguards in line with occupational health and safety standards to minimise health and safety risks. Employee education funds should be allocated in accordance with regulations, with more than 60% directed towards frontline workers
Corporate Governance
Implementation Measures for Food Business License and Filing Management in Shanghai
On April 9, 2024, the Shanghai Municipal Administration for Market Regulation enacted the revised Implementation Measures for Food Business Licensing and Filing Management in Shanghai. According to Article 24 of the regulations, small restaurants and beverage shops with an operating area of less than 150 square meters that have implemented the “Internet + Transparent Kitchen” initiative are exempt from on-site inspections during the food business licensing process.
The “Internet + Transparent Kitchen” initiative requires catering establishments to install monitoring equipment in their kitchens and publicly share real-time operational processes with both regulatory authorities and the general public, thereby enhancing transparency in food safety. This policy aims to improve administrative efficiency through digital regulatory measures and reduce operational costs for businesses during their initial setup phase.
=============
If you're considering entering the Chinese market or have existing operations and would like to speak with a local expert, feel free to reach out to us at MKTG@RSMSingapore.sg or click the Contact Us button. We'd be happy to connect you with one of our consultants.
-cropped.svg)
