Another extension of the tax concession for one-off payments and other tax advantages for expatriates in China
The Chinese government has taken a number of supportive measures to improve the economic situation in China. Most recently, on August 28, 2023, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) announced that expatriate tax exemptions on allowances will expire on December 31, 2023 should be extended until December 31, 2027. This is a surprise as the Chinese government actually used the words for the last time during the last extension.
Expatriates living and working in China have for many years been entitled to tax exemptions for the costs of accommodating and raising children in international schools. With the introduction of the new Personal Income Tax (IIT) Law 2019, the SAT has established and specified the specific additional allowances for the IIT in order to gradually unify the allowances for Chinese taxpayers and expatriates. Many expatriates living and working in China, as well as their employers, have expressed concern about a significant increase in the tax burden from 2024 onwards.
The extension of this rule is certainly positive, as it significantly boosts the confidence of foreign investors in China and further minimizes the potential tax burden of expatriates in the future and ensures tax liability stability for the next four years.
At the same time, the Chinese tax authority has announced that the tax breaks for one-time special payments will also be extended until December 31, 2027 and will be taxed separately without being included in the consolidated income.
It also aims to reduce the tax burden for all tax residents and create a favorable tax environment to promote China’s economic development.
“Our recommendation is to review the current posting contracts and, if applicable, local employment contracts of the expatriates and to deal with extensions of the tax exemption or tax reduction. It is important to remember that this exemption only applies to allowances that are specifically listed in the contracts. In addition, expatriates who opt for the exemption cannot additionally benefit from the special allowances as Chinese taxpayers,” says Kai Mütze, Managing Director of IAC GmbH.