Who is responsible for the penalty an expat employee incurs for late payment of income tax?
Normally, the FIE would be the withholding agent of the expat employee's tax. This means it has the obligation to withhold and pay the income tax directly from the expat employee's salary within the first seven days of each month. As the withholding agent, the FIE is liable if the tax has not been withheld or collected and would thus be lumbered with the late payment fine or other fines imposed. On the other hand, if the expat employee's salary was paid by the parent company in Hong Kong, the expat employee would himself by responsible for payment of tax on his salary. Either way, PRC tax authorities will go for the easy target when chasing the expat employee's tax payment, which normally is the FIE which has a fixed presence and assets in China. How the FIE is going to retrieve the tax payments from the expat employee is of no concern to the Chinese tax authorities.
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