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Where Taxpayers and Advisers Meet

Foreign income tax relief

cpeetb
Posts: 3
Joined: Fri Dec 07, 2018 9:00 am

Foreign income tax relief

Postby cpeetb » Fri Dec 07, 2018 9:10 am

I work full time for a Chinese company. I receive a fixed take home salary, however I don’t receive a P60 or equivalent so I don’t know how exactly my tax works. I believe that I have a gross income from which my employer makes a deduction for tax at the full local rate. However they then apply tax relief on this deduction to reduce the amount that gets paid to the Chinese authorities.

My question is how would HMRC view this? Do they only consider the tax that ends up with the Chinese authorities or because I am not benefiting from (and have not asked for) the tax relief can I work backwards from my net salary to show my gross salary?

AGoodman
Posts: 767
Joined: Fri May 16, 2014 3:47 pm

Re: Foreign income tax relief

Postby AGoodman » Fri Dec 07, 2018 5:00 pm

I assume you are UK resident.
Assuming for a moment that any dble tax treaty gives China first taxing rights:
HMRC will only give credit for the net local tax paid. I don't quite follow what you said but I understand that your employer deducts the full amount but you later receive some of that back. HMRC will not give credit for that part you recover.

cpeetb
Posts: 3
Joined: Fri Dec 07, 2018 9:00 am

Re: Foreign income tax relief

Postby cpeetb » Fri Dec 07, 2018 5:17 pm

Thank you for your reply. The issue is my employer is claiming the tax relief but I am not receiving this benefit - my employer is keeping it as my net salary is fixed. It seems to me that it is a bit unfair to be taxed on this relief if I haven’t applied for it myself and if I am not gaining any benefit from it.

bd6759
Posts: 3067
Joined: Sat Feb 01, 2014 3:26 pm

Re: Foreign income tax relief

Postby bd6759 » Fri Dec 07, 2018 8:29 pm

Your contract gives you a fixed net salary. You are getting the amount you are entitled to, so what exactly is the problem?

cpeetb
Posts: 3
Joined: Fri Dec 07, 2018 9:00 am

Re: Foreign income tax relief

Postby cpeetb » Sat Dec 08, 2018 4:26 am

The issue is not my take-home pay, but whether or not the tax relief (which the company is claiming and retaining) counts towards an HMRC tax credit. I personally don’t claim the relief or fill in a tax return myself - it is all done at source. The company takes (I assume) a deduction from my gross salary that it then adjusts. My thinking is that once that deduction is made, I have paid my tax at that rate - what happens after that is surely a local agreement between the company and the authorities?

bd6759
Posts: 3067
Joined: Sat Feb 01, 2014 3:26 pm

Re: Foreign income tax relief

Postby bd6759 » Sat Dec 08, 2018 11:06 am

In general terms, if a UK based employer makes salary payments that are liable to UK PAYE and also to a foreign withholding tax, that employer can reach an agreement with HMRC to net the foreign tax against the PAYE tax.

For a net pay arrangement, your employer will need to work out a notional gross pay would result in he net amount you receive after notional deductions. If this was solely in the UK, and you received £5000 per month the gross pay would be £7,468 less lax £2,017 and NIC £451. But the calculation is much more difficult where there are two tax regimes to consider with different rates of tax on the same income. It all depends on what your employer has agreed to.

Why not ask you employer for a statement of earnings? Or read your employment contract which will set out the method by which your pay is calculated?

hk1999
Posts: 8
Joined: Sat Jul 22, 2017 10:36 am

Re: Foreign income tax relief

Postby hk1999 » Mon Mar 11, 2019 7:04 pm

I am a UK expat and have worked in China and Hong Kong since 1997 (still do). It is common for Chinese and some International companies to understate wages to tax authority in order to significantly reduce deductions (rates are progressive to 45%, very high compared to Hong Kong at 17%). If you push your company for firm evidence you could end up losing your job.
Whilst my comments are only 'an opinion' this is based on my 22yrs experience both personal and from other ex-pats.

https://www.caixinglobal.com/2018-09-11/foreigners-face-paying-more-tax-in-china-101324746.html


Good Luck!

darthblingbling
Posts: 220
Joined: Wed Aug 02, 2017 9:09 pm

Re: Foreign income tax relief

Postby darthblingbling » Mon Mar 11, 2019 8:34 pm

Are you actually doing any work in China?


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