TikTok’s Chinese workers seek tax compensation for US relocation

[BEIJING] Some of TikTok’s Chinese employees are requesting company compensation for additional taxes incurred due to their relocation to the US, according to sources familiar with the matter.

The workers are asking TikTok to cover any tax liabilities exceeding the 45 per cent cap they would be subject to in China, the sources said, requesting not to be named because the matter is private. They argue that failure to do so could undermine Chinese workers’ willingness to relocate to the US.

The company is discussing the situation with employees, held meetings and arranged calls with tax consultants to address staff concerns, the sources added.

TikTok parent ByteDance has been relocating more Chinese executives into US-based jobs, particularly within the app’s e-commerce division, as it seeks to replicate the success that similar shopping products have had in China. Tax issues for a key segment of the workforce risk undermining morale for those who have already relocated and discouraging others from moving abroad, adding to the challenges for TikTok and ByteDance.

A TikTok spokesperson declined to comment.

ByteDance is already facing the prospect of being forced to divest the American operations of TikTok or face a nationwide ban in the US, though enforcement has been delayed multiple times by US President Donald Trump. The current deadline for ByteDance to divest TikTok is mid-September.

Although China has long had laws requiring mainland citizens to pay taxes on their global income, enforcement only began in earnest in recent years. Companies have often relied on employees to comply voluntarily, with the exception of some Chinese state-owned firms operating in places including Hong Kong and Singapore enforcing the rule.

TikTok renewed its tax payment requirements this year and asked Chinese staff in the US to comply with Chinese laws that demand global income payment, according to sources familiar. That’s led to additional tax expenses for the staff.

Patrick Yip, Asia vice-chair at Mishcon de Reya LLP, said he had not seen Chinese companies strictly enforcing China tax reporting obligations on their employees, as technically they can argue they do not have the obligation to withhold taxes for staff of subsidiaries abroad. TikTok, instead, appears to have chosen to confront the issue head on, he added.

“I think what TikTok did is an unambiguous, deliberate demonstration to both the Chinese and US governments that it is a law-abiding business,” he said. “Perhaps the company considers law compliance in this area important during this critical period of time concerning the future of its US operations.”

Some of the Chinese employees who work in US offices of the social media app were notified early in June for the first time that they needed to pay China taxes, the sources said. The increased tax burden caught many off guard, who say the firm did not tell them about the issue when they were asked to relocate.

Adding to their burden, only US federal levies can be excluded under bilateral tax agreements, the sources said. That means they have to pay additional Chinese taxes because the levies can go up to 45 per cent, while the US federal rate is capped at 37 per cent. The US state taxes can amount to more than 10 per cent in places including California based on their income levels, the sources said.

Some workers who are partly compensated in stock options chose to settle their taxes in cash, meaning now they need to come up with a large amount of money in a short period of time. TikTok has offered loans to people facing this difficulty, the sources added.

The employees are required by law to file their 2024 tax returns in China by the end of June this year.

China has been increasing efforts to collect taxes on citizens’ overseas income, expanding scrutiny to less wealthy individuals after targeting the ultra-rich last year, sources familiar said in June. Tax authorities are focusing on a broad range of offshore income, including investment returns, dividends and employee stock options, they added.

The tax push is part of China’s efforts to boost fiscal income and narrow a record budget deficit, with local governments pressed for revenue amid a property crisis and deleveraging. BLOOMBERG