The Chinese Ministry of Commerce and State Taxation Administration jointly announced on 31 December an extension to the preferential income tax treatment on expatriate fringe benefits through to the end of 2023. The provision had been set to expire on 1 January 2022.
As a result, non-China domiciled individuals working in China can continue to claim tax-exempt ‘benefits-in-kind’ (BIK) through to 31 December 2023 in the following categories:
- Housing expenses
- Education expenses for children
- Language training expenses
- Meal fees
- Laundry fees
- Relocation expenses
- Business travel expenses
- Home leave expenses
These BIK will continue to be generally exempt from PRC Individual Income Tax (IIT) provided that the expenses are reasonable in amount, that there are corresponding supporting documents, such as invoices (fapiao), and subject to specific limits. Home leave expenses, for example, are tax-exempt only for the travel expenses for an expatriate to their home country (or that of their spouse) for up to two trips per year.
The announcement of the two-year extension came amid growing concern that the imminent termination of the preferential income tax treatment for expatriates might lead to an exodus of top talent due to rising living costs. These concerns were amplified by the continued uncertainty and upheaval of the global pandemic.
The extension will give employees and employers time to evaluate employment status, negotiate new terms or make plans to repatriate. Employers that have already made staffing or contract adjustments in anticipation of the change may need to defer or renegotiate.
The announcement came shortly after China extended another preferential tax policy, for the annual one-time bonus of both foreign and Chinese individuals, to the same date of 31 December 2023.