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Payroll for Expatriates in China: 2 Things you need to know

(October 17th, 2014)

By Richard Hoffmann, ECOVIS Beijing China

Along side globalization and the advancement of technology, it doesn’t come as a surprise that international projects and global assignments have become a norm in today’s business world. In addition to the increase in international projects, an expected increase the population of expatriates working on both short-term and long-term projects is also expected. It’s important to think about the different implications for your employees including “payroll for expatriates”.

Payroll for Expatriates China Ecovis Beijing

Payroll for Expatriates

Managing expatriates payroll effectively whilst being cost-efficient is not an easy task. The process may seem tedious, starting from the payroll set up, to the preparation of individual pay slips, moving through to the payroll reporting, assessing and finally reviewing. But that can be easily managed with the help of our expertise.

Throughout the expatriate payroll process, the generally most emphasized step would be the determination of payment and the net salary arrangement, where a possible conflict of interest between being cost-effective for the firm and beneficial for the expatriate may arise. In this article, we’ll introduce two aspects when determining the expatriate remuneration package that may potentially help create solutions to being cost-efficient, yet maximizing employee benefits. These aspects are:

  1. Project Management
  2. Benefits-in-kind


Project Management:
For those planning short-term assignments in China, it is advised to plan clearly in advance as it can impact the net income of the expatriate. An overrun stay may result in the payment for income borne by overseas entity as well as the expected tax for income borne by China entity. Simple scheduling includes: for example, when aiming for a 90/183 day stay, the project should be planned clearly within these time frames. It would be advised that all accommodation and logistics be arranged in advance to optimize the time given.

Payroll for Expatriates 01 Ecovis Beijing

Payroll for Expatriates 01 Ecovis Beijing

However, for longer projects, time frames involved would be on the annual scale. It would be beneficial for projects to avoid starting just before the new tax year or finished just after a tax year has gone by. These circumstances may result in extra administrative work, which may prove to outweigh the benefits of the possible tax returns. Therefore, simple project management could save administrative and potentially financial efforts.

Chinese regulations allow the use of benefits-in-kind to potentially increase the net remuneration value for the expatriate by deducting the value of these benefits from the net taxable income. Of course, such benefits-in-kind also come with a tedious list of conditions that must be met before it can be accepted as tax deductable, but the outcome of this can change the net taxable income and ultimately the rate of tax. Payroll for expatriates is an important part of your employment strategy whether you are seconding employees or you give them local employment contracts.

Benefits may include the rental, laundry and other tuition fee such as language courses. Amongst them, the most common benefit is accommodation. Accommodation paid by the company, or paid by the employee but claimed through the submission of an official tax receipt to the company, can be deducted from the total salary. This results in not just a deduction of taxable income, but may also potentially lead to the degrading to a lower tax rate group, ensuing a larger net value for the expatriate at no additional expense of the company. As shown in the graph below, the difference in tax rates between groups can be quite substantial.

Payroll for Expatriates 02 China Ecovis Beijing

Payroll for Expatriates 02 China Ecovis Beijing

Nevertheless, it is important to be mindful that all benefits-in-kind must be in non-cash or reimbursement basis for it to potentially be valid in terms of Chinese regulations.

Payroll management involves a lot more than just the determination of remuneration package, but also tasks such as the assessment of social benefit contribution and filing for individual PRC income tax returns. If you would like to learn more about payroll management or have any inquiries on the process, please do not hesitate to contact us. We would be more than happy to assist you with your payroll for expatriates.

Richard Hoffmann Richard Hoffmann is a Partner at ECOVIS Beijing China. Richard obtained an honor’s degree in law and worked in Germany, America and China for various prestigious law firms prior to joining ECOVIS. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV. Contact: richard.hoffmann@ecovis.com
Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter or give us a call +86 10-65616609 (ext 811/806) or contact us directly via Beijing@ecovis.com
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