Tax-residency traps for remote founders

A founder running a Chinese company from abroad has two residence questions. You become a Chinese tax resident after 183 full days in China in a calendar year. The company is always Chinese-resident, but your home country may claim it too. Australia can if it carries on business there and is managed and controlled there, or controlled by Australian-resident shareholders.

“Tax residency” gets talked about as if it were one line. For a founder who owns and runs a Chinese company from a desk somewhere else there are two, and they move independently: where you are taxed on your own income, and where the company is taxed on its profit. You can cross either without noticing. Each has a Chinese side, which is written down in Chinese statute, and a home-country side, which depends on where you live. This page sets out the first in full and shows the second through one worked example, Australia.

When do you become a Chinese tax resident?

When you have a domicile in China, or, without one, spend 183 days or more in China in a tax year. The tax year is the calendar year (Individual Income Tax Law, Article 1).^⁠[1] A resident (居民个人) is taxed on income from inside and outside China; a non-resident only on income from inside China.

Domicile is not about owning property. It means habitually living in China because of household registration, family or economic ties (Implementing Regulations, Article 2).^⁠[2] A foreign founder with a family and a home abroad will usually have no Chinese domicile, which leaves the day count as the test that matters.

If you are	The test	China taxes
Domiciled in China	Habitual residence in China through household registration, family or economic ties	Worldwide income
Not domiciled, 183 days or more	183 or more days in China in the calendar year, counting only days spent in China for the full 24 hours	Worldwide income, subject to the six-year rule below
Not domiciled, under 183 days	Fewer than 183 such days	Income from inside China only

The 24-hour rule is what makes the count easier to manage than it looks. A day counts towards the 183 only if you are in China for the whole of it; the day you arrive and the day you leave, being less than 24 hours, do not count (Announcement 2019 No. 34, item 2).^⁠[3] Count per calendar year, keep your own record, and leave a margin.

What if you are resident for only a few years?

Then income from outside China, paid by a payer outside China, stays out of the Chinese net for up to six years. A resident without a domicile whose years of 183 days or more have run for fewer than six consecutive years is exempt on income that comes from outside China and is paid by a foreign entity or individual, once a filing has been made with the tax authority. One absence of more than 30 days in any such year restarts the count (Implementing Regulations, Article 4).^⁠[2] The six years are counted from 2019 onward, so 2025 was the first year anyone could reach them (Announcement 2019 No. 34, item 1).^⁠[3]

The exemption covers foreign income paid from abroad. Income from outside China paid by a Chinese payer, including your own Chinese company, is not within it.

Short visits have their own rule. A person without a domicile who spends no more than 90 days in China in a tax year is exempt on China-source pay that a foreign employer pays and that no establishment of that employer in China bears (Implementing Regulations, Article 5).^⁠[2]

Is pay from your own Chinese company taxed in China?

Usually yes, and wherever you do the work. Pay for services performed in China is China-source income, wherever it is paid (Implementing Regulations, Article 3).^⁠[2] A founder who is also a director, supervisor or senior manager of the Chinese company is caught more widely: directors’ fees, supervisors’ fees, salary and similar pay that a Chinese resident enterprise pays or bears are China-source whether or not the duties are performed in China (Announcement 2019 No. 35, item 1(3)).^⁠[4]

So a founder who never sets foot in China can still owe Chinese tax on a salary drawn from the Chinese company, as a non-resident taxed on China-source income. Whether to draw one at all is a decision with consequences on both sides of the border, and the other routes money takes out of a Chinese company are set out in getting your money out of China.

Where is your Chinese company tax-resident?

In China, always. A company established in China under Chinese law is a Chinese resident enterprise (Enterprise Income Tax Law, Article 2).^⁠[5] There is nothing to manage on the Chinese side: registration settles it.

China also applies a management test, but to companies incorporated abroad. A foreign company whose actual management body (实际管理机构) is in China is Chinese-resident as well: the body that exercises substantive, overall management and control over its production and business, personnel, accounts and property (Implementing Regulations, Article 4).^⁠[6] That is worth knowing if you run a foreign holding company from China. For the Chinese company itself, the open question is not China’s view. It is your home country’s.

Can your home country claim the company too?

It can, where its test looks at management or ownership and not only at where the company was set up. Australia is the worked example. For a company incorporated outside Australia, the definition of “resident” in the Income Tax Assessment Act 1936 has two limbs, and meeting either makes the company an Australian resident (section 6(1)).^⁠[7]

Limb	Test	ATO view
Central management and control	Carries on business in Australia and has its central management and control there	A company that carries on business and has its central management and control in Australia carries on business in Australia for this limb; no part of its trading or investment operations has to take place there
Voting power	Carries on business in Australia, and shareholders who are residents of Australia control its voting power	None: TR 2018/5 does not deal with this limb, or with when a company carries on a business

Central management and control is where the high-level decisions are made in fact, not where they are minuted, and it is not fixed by where the directors live (TR 2018/5, paragraphs 30 and 34). Being the majority shareholder, or holding the power to appoint the board, is not by itself control and direction (paragraph 14).^⁠[8]

The voting-power limb does not ask where the company is managed.^⁠[7] If a founder who is an Australian resident for tax purposes controls most of the votes, the company meets the ownership half, and the only question left is whether the company carries on business in Australia, on which the ATO’s ruling is silent (table above). For such a founder, keeping the decisions in China does not by itself keep the company from being an Australian resident.

Not every country has a management or ownership test. The United States treats a corporation as domestic if it is created or organised in the United States, and as foreign otherwise; its definition has no management test (26 U.S.C. § 7701).^⁠[9] Find out which kind of test your own country uses before anything else on this page.

What does a tax treaty do with a company resident in both countries?

Less than it used to. Under the OECD Model as updated in 2017, the two tax authorities try to settle a dual-resident company’s residence by mutual agreement, having regard to its place of effective management, where it was incorporated and any other relevant factors. If they do not agree, the company gets no treaty relief or exemption except as they agree (Article 4(3)).^⁠[10] The version before 2017 simply deemed the company resident where its place of effective management was, and older summaries still describe that.

Instrument	A company resident in both countries
OECD Model, before 2017	Deemed resident only where its place of effective management is
OECD Model, 2017	Settled by mutual agreement between the tax authorities; without agreement, no treaty relief
China-Australia agreement, as signed in 1988	Resident where its place of effective management or head office (总机构) is; where the two were in different countries, the head office decided
China-Australia agreement, as modified by the MLI	The 2017 rule: mutual agreement, and no treaty relief without it. In effect for withholding taxes from 1 January 2023 and for other taxes for periods beginning on or after 1 March 2023

For the worked example, that removes the automatic answer. A Chinese company run from Australia can no longer rely on its head office being in China to settle which country the treaty treats it as resident in; the question goes to the two authorities, case by case.^⁠[11]

Can running the company from home create a permanent establishment?

Yes, even where the company stays resident only in China. A place of management is listed as a permanent establishment in the OECD Model (Article 5(2)(a)), and so is a person who habitually concludes contracts for the company, or habitually plays the principal role leading to contracts routinely concluded without material modification (Article 5(5)).^⁠[10] The China-Australia agreement lists a place of management in the same way (Article 5(2)), but its agent rule is the older and narrower one, a person who has and habitually exercises an authority to conclude contracts for the company; the MLI did not change it.^⁠[11] A permanent establishment in your home country puts the profit attributable to it into that country’s tax net. The cause is the same as for residence: the company is being run from your desk.

Can your home country tax the profit before it is paid out?

Through controlled foreign company rules, yes, and independently of residence. Many countries attribute some of a controlled foreign company’s undistributed income to its resident owners, so a dividend never has to be paid for tax to fall due at home.

In the Australian version, a foreign company is a controlled foreign company where, broadly, five or fewer Australian entities hold 50% or more, or one holds 40% or more and nobody else controls it (Income Tax Assessment Act 1936, section 340). Its tainted income escapes attribution only if it passes an active income test, whose conditions include gross tainted turnover of less than 5% of gross turnover (section 432(1)(f)). Tainted services income is income from services provided to Australian residents (section 448(1)).^⁠[7] A Chinese company whose customers are back in Australia is exactly the case the rule is written for.

China has the same kind of rule, and it points the other way. A Chinese resident enterprise, or a Chinese resident individual, that controls a company in a jurisdiction with a markedly low tax burden can have that company’s profit attributed to it where the profit is withheld, or cut back, for no reasonable business need (Enterprise Income Tax Law, Article 45; Individual Income Tax Law, Article 8).^⁠[1,5] For companies, low means an effective burden below 12.5%, and control starts at a 10% voting holding where Chinese residents together hold 50% (Implementing Regulations, Articles 117 and 118).^⁠[6] It matters to a founder who becomes resident in China while still holding a company elsewhere.

How are dividends from the Chinese company taxed in China?

At 10% if the shareholder is a foreign company, and at 20% if it is a foreign individual, both withheld by the Chinese company when it pays. The company rate is the 20% in the Enterprise Income Tax Law reduced to 10% (Implementing Regulations, Article 91).^⁠[6] The individual rate is the 20% on dividends in the Individual Income Tax Law (Article 3).^⁠[1]

The individual rate is new for foreign founders. From 1994 until 31 August 2026, dividends that a foreign individual received from a foreign-invested enterprise were exempt. MOF and STA Announcement 2026 No. 27 repealed that exemption and taxes those dividends at 20% from 1 September 2026; it contains no transitional rule for profits earned before that date.^⁠[12] Guidance written before September 2026, including some official question-and-answer pages that have not yet been updated, still describes the exemption.

A treaty can lower the rate. The China-Australia agreement caps Chinese tax on dividends paid to an Australian-resident beneficial owner at 15% (Article 10(2)),^⁠[11] which reduces the 20% an individual pays and leaves a company’s 10% as it is. Your home country will then tax the dividend under its own rules, usually with a credit for the Chinese tax. The sequence that has to come first (audit, tax settlement, statutory reserve) is in getting your money out of China.

How do founders keep the two questions apart?

Mostly by discipline rather than structure, and by keeping evidence of it.

• Count days the way China counts them. Full 24-hour days in China, per calendar year, against 183; and against whatever your home country’s own test is.
• Separate owning from running. Holding the shares, or the power to appoint the board, does not by itself decide where a company is managed; making its real decisions does. Where someone in China runs the company, have those decisions made and recorded there. In Australia, that discipline does not answer the voting-power limb above.
• Match the contracting company to the customer. Revenue from customers in your home country billed through the Chinese company is the income controlled foreign company rules are aimed at.
• Keep the record. Where decisions were made, by whom and when. It is the evidence if either country ever asks, and it cannot be assembled afterwards.
• Decide how you will be paid before you are. Salary, director’s fees and dividends are taxed differently in China and at home, and dividends to foreign individuals changed on 1 September 2026.

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