China is one of the major destinations for multinational investment and consequently is home to a large number for expatriate employees, either assigned to or employed directly by multinational corporations in China or Chinese enterprises. Both types of organisations have been able to reduce the costs associated with expatriate benefit packages courtesy of concessions which have enabled benefits to be provided without incurring personal income tax, provided they meet certain criteria (such as if delivered via reimbursement or if the employer pays for the benefit directly). ECA’s Tax Report for China contains further information regarding the commonly-provided benefits which qualify for such favourable treatment.
In 2021 it became known that the Ministry of Finance and the State Administration of Taxation would let legislation allowing expatriate employees in China to benefit from these concessions lapse. This would potentially have had a significant impact on expatriate employment costs as most of these benefits would then likely be subject to tax at the highest marginal rate (45%) for many expatriate employees. Implementation was delayed until 31 December 2023, but it has recently been announced in the Shanghai Daily that this concession will be extended until 31 December 2027, providing clarity and a period of certainty for many managing foreign employees in China.
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For further information in relation to income taxes for expatriate employees in China, please feel free to contact us.