In August 2023, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) have released three regulatory circulars (Circular 25, Circular 29 and Circular 30) to extend the following Individual Income Tax (“IIT“) related incentives to the end of 2027. The move is intended to alleviate the IIT burden on China’s middle-income groups and expatriates.
Expatriates working in China can continue to enjoy tax exemption on eight categories of fringe benefits as follows till December 31, 2027. (The earlier rule was set to expire on December 31, 2023.)
- Housing rental expense
- Education expense for children
- Language training expense
- Meal fee
- Laundry fee
- Relocation expense
- Business travel expense
- Home visit expense
Such fringe benefits could be exempt from IIT provided that the expenses are reasonable in amount and supported by proper documents, such as invoices (fapiao). The reasonable ratio of the fringe benefits to the salary varies for different jurisdictions and needs to be determined by the management of the companies based on practical experience and consultation with the competent authority.
The preferential tax treatment for the annual one-time bonus is also extended until the end of 2027. Under this scheme, IIT on annual one-time bonus is calculated and taxed applying the following formula, separately from the basic salary as the comprehensive income:
Tax payable on annual bonus = Taxable annual bonus amount x Applicable tax rate – Quick deduction
Another preferential IIT treatment applicable to the equity incentives of listed companies is also extended to the end of 2027.
With professional teams of HR & payroll experts located in Shanghai, Beijng and Jiangsu China, we have been providing extensive HR & payroll related tax advisory and compliance services to our clients.
For more information and assistance, for example the documentation requirement for fringe benefits or the calculation of the annual bonus, please feel free to contact us.
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