China’s economy has seen progressive growth for over 40 years and, while there are signs of slowing in 2024, it has been a popular business location for centuries. Government incentives for company expansion, the large pool of skilled workers, and quality manufacturing capabilities make the large country an attractive opportunity to many companies. This can mean that businesses setting up international premises might look to China, which means relocating employees across the globe.
An announcement came in 2023 from the Ministry of Commerce that the preferential individual income tax (IIT) on foreigners’ fringe benefits has been extended until 2027. This is great news for foreigners living and working in China, and therefore, also for companies with employees living in the country. But what exactly does this mean?
What Is The Preferential Tax Policy?
In short, China has granted the extension of two beneficial tax policies for expatriates. One is substantially lower personal income tax, and the other is considerable subsidiaries on many living costs, including many tax-free areas for expatriates. The idea is that many items and areas of spending for foreign nationals are subsidised in kind, including food allowances, fees around their relocation, trips home, family visiting costs, and more. The full list extends to 8 areas, including:
- Rental accommodation costs
- Education costs
- Language training expenses
- Meal fees
- Laundry expenses
- Fees associated with relocation
- Business travel expense
- Home leave expense
This change highlights the intent to attract more foreign business to China, retain top international talent and companies, and boost their economy. Their tax policies highlight their favour of foreign business individuals.
Who Can Benefit?
Expats living in China hoping to find employment in a Chinese company might find that they are more attractive to local businesses. Local businesses or companies with premises in China will benefit massively from hiring foreign nationals over highly skilled locals, so expats are far more beneficial to hire.
What Does This Mean for Expats?
Expats will find the tax benefits allow them more disposable income when living in China, so hopefully a higher quality of life living there as a foreign national. What’s more, the assimilation of expats into Chinese culture will be considerably easier when notoriously high costs, such as education for children, are subsidised in kind.
What Does This Mean for Companies with Employees in China?
If you are currently employing expats living in China, you should ensure that payroll and HR policies are updated to reflect these changes. Any preparations that were made according to the old tax policy should also be reviewed for reconsideration in light of these updates. It will also make China a more attractive place and an easier place to assimilate into for British nationals making the move, with a previously more difficult culture to become accustomed to.
There are significant implications for expats in China in the light of these extended preferential tax policies. Read our blog to find out more about ensuring tax compliance during international relocation. Should you need further support with organising global mobility plans, get in touch today.
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