On 31 Dec 2021, the Ministry of Finance (“MOF”) and the State Taxation Administration (“STA”) have jointly stipulated two regulatory circulars (Circular 42 and Circular 43) to extend the following tax incentives to year 2023, mainly including:
- Annual bonus can be separately taxed from the basic salary using the preferential IIT calculation method;
- Tax free treatment of the benefits in kinds reimbursed to foreigners
- Preferential tax treatment to the equity incentives provided by listed companies
Before the stipulation of those two circulars, those preferential IIT treatment were supposed to be abolished on 1 Jan 2022, in accordance with MOF and STA Public Announcement  No. 164 (“Circular 164”). We prepared a newsletter dated 6 September 2021 about the impact of Circular 164. The contents discussed in that newsletter are subject to change now.
Circulars 42 and 43 are regarded as the New Year gift from the Chinese government to the employees working in China. However, if you had already planned for certain changes to the employment contracts, we suggest you conduct an immediate review and consider if it is necessary to make any updates.
If you have any questions of the above or need our further assistance, please feel free to contact us!
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Dr. Gerald Neumann