Individual income tax China: Tax benefits for foreign residents extended
China has postponed changes to individual income tax (IIT). Foreign residents can now take advantage of the tax benefits until 31 December 2023.
Shortly before the turn of the year 2021/2022, the Chinese government announced that it would postpone the changes in individual income tax planned for 1 January 2022. Those affected can now better adapt to the new rules.
Taking advantage of individual income tax benefits until December 2023
The two most important IIT policy postponements affect fringe benefits and bonuses for foreign residents.
Fringe benefits include:
- Chinese social security insurances
- Allowances for meals, laundry, relocation and housing
- Home-leave for expats with up to 2 roundtrips per year
- Fees for Chinese language training
- Tuition fees for the education of the expat’s children
These benefits can be exempt from IIT provided that:
- They do not exceed around 30-40% of the gross base salary depending on location and level of the salary
- The benefits are provided on a non-cash or reimbursement basis for which a Fapiao, an official tax receipt, is needed
Moreover, under the current policy, an annual bonus can be taxed using two different methods: it can either be calculated separately or taxed along with the annual comprehensive income.
Businesses should develop a strategy to attract and retain employees despite a worse tax situation.Richard Hoffmann, Lawyer, Ecovis Heidelberg, Germany
How companies can respond to the changes in IIT and retain employees
It is advisable to develop a strategy and react to the destabilising effects that this change might have on companies’ staff. It is crucial to discuss and explain the policy changes to affected employees.
There are several points to consider. It may be possible to adjust wages in such a way that the gap in the employee’s tax burden is covered or eased. Or companies may consider hiring local professionals if foreign employees decide to leave. In all cases, it is important to seek professional advice on dealing with foreign residents’ tax planning in the future and establish the most efficient restructuring of salary terms.
This extension of beneficial tax policies shows that China is tackling the downward pressures on the economy, explain the Ecovis experts. Although it is facing a variety of economic challenges, the government is trying to support a more stable business environment as a response.
For further information please contact:
Richard Hoffmann, Lawyer, Ecovis Heidelberg, Germany
ECOVIS European China deskLenaustrasse 12
Phone: +49 6221 9985 639