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China tax alert: Considerations for employee relocation due to coronavirus

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While news abounds about various countries evacuating their citizens out of Wuhan by air due to the coronavirus outbreak, what are the implications for companies looking to relocate their employees out of China in the short  or longer term in these uncertain times?

According to a tax update from KPMG, many companies are now assessing whether it is necessary to repatriate expatriates from mainland China and suspending business travel arrangements. These considerations are a result of the Chinese government announcement on extending the Lunar New Year holiday for employees, and other countries implementing new border restrictions to travellers from China.

Immigration considerations

The most immediate need is immigration and establishing whether an employee will have the right to work when they arrive at their new location. If this is their home country, it should be straight forward – but if it is a different jurisdiction, it may not be as simple, or as quick. With this in mind, a lack of planning may lead to a significant period of time when the individual cannot work and needs to be placed on leave until the situation is rectified.

Prime considerations include:

– Personal status (e.g. nationality, valid visas considerations)

– Nature of activities to be carried out in the jurisdiction

– Intended period of stay

– Whether family will accompany them

Personal tax considerations

An employee is likely to trigger a tax liability in the country in which they are working, even if it is not their home work location. An exemption may be available dependent on the local concessional rules in that jurisdiction or application of double tax treaty where applicable. Often these exemptions will hinge on the duration of the stay, and where the costs are borne.

If tax liability is triggered in a country, individuals and their employers may be subject to tax reporting and withholding obligations according to local practices in that jurisdiction.

Ongoing personal tax and employer withholding obligations in China may continue if the move out of China is temporary, and double taxation may arise where move to the other jurisdiction is extended and the employment arrangement is not updated in a timely manner.

If the employee is returning to their home country, it should be straight forward from an immigration perspective, but could also have repercussions for the individual’s tax residence. For example, if an employee left their home country relatively short time ago, their return may mean that tax considerations may be regarded as not to have been broken, creating a tax risk back in their original jurisdiction.

Corporate tax considerations

An employee performing work duties in a jurisdiction may trigger tax obligations for his or her employer in that country. Depending on its duration and the activities undertaken in the jurisdiction, it may trigger a corporate tax liability, business registration or registration for other taxes, such as VAT or GST.

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