How serious are the Chinese tax authorities in cracking down on tax evasion by expat employees?
Due to the Chinese tax authorities' mounting campaign against tax evasion, it is increasingly likely that expat employees in China will be faced with the unpaid tax bill as well as an additional late payment fine of 0.2 percent per day of the overdue amount. If the tax authority finds out about the late payment, it will provide a time limit to the individual or FIE on the individual's behalf, to declare his tax situation and settle his outstanding tax. If they miss the deadline, a fine in the region of RMB2,000 to RMB10,000 may also be imposed. If the expat employee approaches the tax authorities first before they find out about his problem, he may be able to avoid, or at least minimize, the fine as China's officials have a tradition of extending leniency to individuals who admit their wrongdoings and turn themselves in. It is important that an expat employee avoids giving the impression that he or she is engaged in a conscious effort to evade paying taxes as under the Supplementary Individual Income Tax Rules of the Standing Committee of the National People's Congress on Punishment for Tax Evasion and Refusal to Pay Tax, effective from January 1, 1993, tax evasion is punishable by prison sentences of up to seven years and fines of up to five times the amount of tax evaded.
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