Ask Headmaster Ken

Hey, first time posting, love your website.

I'm a 2009 college grad who's working as a foreign teacher here. I'm really enjoying it and am planning on staying next year. However, I'm lucky enough to have a substantial income doing audio-book voice overs for the US market. I record these in a small studio I set up in my teacher apartment.

Anyway, as I'm planning on coming back next year, what would be the best way to bring this money to China? I should be bringing about $27,000 back from the US this fall. What would be the best way to get that money into my Chinese bank account?

Also, what would be the best way to handle the taxes? Thanks a lot, you guys have a great website and I really appreciate your help.

You have entered into two areas that you absolutely need sound professional advice.

Both China and the US have limits on how much cash you can enter/leave the country with. In your case, you are well in excess of that amount.

Moving money between countries always has the potential to pique the interest of tax authorities.

If you do this wrong, you could conceivably lose all your money due to a government forfeiture.

You should consult a tax professional who can answer both questions for you.

I think this is the sort of question that only a currently certified professional should hazard to give advice. The consequences of following inexpert advice could be serious.

I regret I am unable to provide you an answer other than to seek a professional in this matter, but I think it is the most responsible answer I can provide.

I wish you well and continued success.

In addition to Ken's excellent advice, a good place for you to start is by acquiring some factual information.

Even though you are generating income from an American company, you are still eligible for the foreign earned income exclusion (up to $87,600) and housing exclusion because these are based on where the income is earned, not the source or location of the employer or even where the funds are deposited. For more information see the IRS bulletin Foreign Earned Income Exclusion.

Of course, you would then be liable for income tax in China and, as Ken advised, you really do need to consult a Chinese tax attorney about the best way to proceed.

Another good source of information is the State Administration for Foreign Exchange. Foreigners may carry the equivalent of US $5,000 in any currency and 20,000 yuan (approximately US $2,860), either in or out of China, without needing to declare the amount with China Customs.

Best of luck to you.

Thanks for your advice.

From what I've read about Chinese tax codes, it'd be much smarter to pay income tax in the US. $27,000 is very little by US standards, taxed at a 15% rate but anything earned over 100,000 yuan is taxed at a 45% rate. So I'm guessing I should just pay taxes for it in the US rather than try to claim it as earned income here in China.

I will consult a professional, thank you.

The tax table listed in the chapter on Foreigner Income Tax is calculated for income earned on a monthly basis.

If you do the math, an annual income of $27,000 is approximately 15,300 yuan per month, which would place you in the 20% tax category for a small part of that income after the 4800 exemption and after the lower tax brackets are applied:

15300 - 4800 = 10500

2000 * .10 = 200

5000 * .15 = 750

3500 * .20 = 700

Total: 1650, which averages out to 10.7%.

Of course, this does not factor in any additional income that you are earning. In addition, I don't know that choosing not to claim the foreign earned income exclusion on your US tax return necessarily absolves you of your tax burden in China, which is why you really do need to consult someone who does this kind of thing for a living.

Of course, I'll find a licensed professional to talk to about this, better not to leave something like this to chance. Thank you for your candor, and I really appreciate your assistance. Take care,

Chris