By Zoey Zhang and Katrina Huang

Expatriates working in China enjoy various tax-exempt benefits-in-kind (BIK) sometimes referred to as tax-exempt benefits or non-taxable fringe benefits. BIK are additional compensation, not included in the salary or wages, but paid on a reimbursement and non-cash basis.

However, due to the implementation of the Amended PRC Individual Income Tax (IIT) Law and relevant regulations from January 2019, certain non-taxable benefits-in-kind will be replaced by additional itemized deductions for some expatriates, while other non-taxable benefits-in-kind might cease to be exempt from IIT from next year.

The policy change has sparked concerns among foreign individuals as well as their employers, who may face an increase of tax burdens or labor costs. This article explains the implications of the changed policy and provides suggestions from tax, HR, and legal perspectives.

What are the tax-exempt benefits-in-kind?

Non-China domiciled individuals working in China can currently enjoy tax-exempt benefits-in-kind, including the below eight categories:

  • Housing expense

  • Education expense for children

  • Language training expense

  • Meal fee

  • Laundry fee

  • Relocation expense

  • Business travel expense

  • Home leave expense

Such benefits-in-kind could be exempt from PRC IIT provided that the expenses are reasonable in amount and there are corresponding supporting documents, such as invoices (fapiao), for each expense. In addition, there are some specific requirements for each category. For example, for home leave expenses, only the travel expenses for the expatriate themself from China to their/spouses home country for up to two trips per year could be exempt from IIT.

Three-year transition period for non-China domiciled tax residents

However, with the countrys new IIT Law taking effect from January 1, 2019, the government has considered rolling back the tax exemption on special benefits-in-kind for foreigners, partly in a move to equalize benefits between local and foreign tax resident workers.

To ensure a smooth policy transition, at the end of 2018, the Ministry of Finance and the State Tax Administration jointly announced the Notice on the Preferential Policy Convergence Problem (Cai Shui [2018] No.164).

The Notice introduced a three-year transition period. From January 1, 2019 to December 31, 2021, non-China domiciled tax residents (who do not have a domicile in China and live for 183 days or more in China in a given tax year) can choose to enjoy:

  • The tax-exempt benefits-in-kind; or

  • The six additional itemized deductions.

To be specific, the six additional itemized deductions include:

  • Childrens education expenses

  • Continuing education expenses

  • Housing mortgage interest

  • Housing rent

  • Healthcare costs for serious illness

  • Expenses for taking care of the elderly

The two policies cannot be simultaneously enjoyed by non-China domiciled tax residents during the transition period. And once decided, non-China domiciled tax residents cannot change their preference within a given tax year.

According to the Notice, after the three-year transition period, that is starting January 1, 2022, non-China domiciled tax residents will no longer enjoy preferential tax-exemption policies on benefits-in-kind, including housing, language training, and childrens education.

Instead, the three categories of benefits-in-kind will be replaced by the corresponding additional itemized deductions (that is, housing rent, continuing education expenses, and childrens education expenses).

However, as to the remaining five categories of benefits-in-kind (namely meal fee, laundry, relocation expense, business travel expense, and home leave expense), the policy has not clarified whether they may continue to be tax-exempt.

Given the possibility that the government may abolish the tax exemptions on all of the eight benefits-in-kind, or the tax bureau may become more rigorous in approving the tax exemptions on the remaining items, employers should prepare for possible changes as early as possible to avoid concerns from expatriates, said David Niu, Senior Manager in the Human Resources Administration and Payroll Services team at Dezan Shira & Associates Beijing office.

Compared with the six additional itemized deductions, the eight tax-exempt benefits-in-kind are believed to be more beneficial to expatriates who have a higher income and level of expense.

The tax-exempt benefits-in-kind are deducted based on the actual cost of each expenditure, although the amount is subject to the limit of a reasonable amount, which is based on the local living standard, consumption level, market price, etc., and, a proportion of around 30 to 35 percent of the expatriates monthly salary is usually acceptable by the tax authority.

Large multinational companies (MNCs) may face the increased budget cost of dispatching personnel in China. For the sake of cost control, the headquarters of these companies will need to be more prudent and agile in planning the dispatching of employees to China, Livermore advised.

David Niu also added: In fact, some regions of China have been introducing preferential IIT policies to reduce the tax burden on foreign talents. For example, relocation to Greater Bay Area has become a strategy for some multinationals.

Currently, the Guangdong-Hong Kong-Macao Greater Bay Area offers IIT subsidies to high-end and urgently needed foreign talents (including those from Hong Kong, Macao, and Taiwan), which can substantially lower their IIT rate to 15 percent until the end of 2023. Hainan Free Trade Port also introduced a similar IIT preferential policy for high-end and urgently needed foreign and domestic talents until the end of 2024. Other regions may also consider similar policies so as to stay competent in attracting talents, Niu said.

With a large professional team of tax, HR, and legal experts located throughout China, Dezan Shira & Associates has been providing professional human resources, payroll, tax, legal advisory services, and China individual income tax briefing for our clients. For more information and assistance on salary structure adjustment, labor contract modification, and staff re-allocation, you are welcome to consult our experts and mail us at [email protected].

About Us

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at [email protected]

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.



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Some Tax-Exempt Benefits for Expats in China to Expire Next Year

By Zoey Zhang and Katrina Huang

Expatriates working in China enjoy various tax-exempt benefits-in-kind (BIK) sometimes referred to as tax-exempt benefits or non-taxable fringe benefits. BIK are additional compensation, not included in the salary or wages, but paid on a reimbursement and non-cash basis.

However, due to the implementation of the Amended PRC Individual Income Tax (IIT) Law and relevant regulations from January 2019, certain non-taxable benefits-in-kind will be replaced by additional itemized deductions for some expatriates, while other non-taxable benefits-in-kind might cease to be exempt from IIT from next year.

The policy change has sparked concerns among foreign individuals as well as their employers, who may face an increase of tax burdens or labor costs. This article explains the implications of the changed policy and provides suggestions from tax, HR, and legal perspectives.

What are the tax-exempt benefits-in-kind?

Non-China domiciled individuals working in China can currently enjoy tax-exempt benefits-in-kind, including the below eight categories:

  • Housing expense

  • Education expense for children

  • Language training expense

  • Meal fee

  • Laundry fee

  • Relocation expense

  • Business travel expense

  • Home leave expense

Such benefits-in-kind could be exempt from PRC IIT provided that the expenses are reasonable in amount and there are corresponding supporting documents, such as invoices (fapiao), for each expense. In addition, there are some specific requirements for each category. For example, for home leave expenses, only the travel expenses for the expatriate themself from China to their/spouses home country for up to two trips per year could be exempt from IIT.

Three-year transition period for non-China domiciled tax residents

However, with the countrys new IIT Law taking effect from January 1, 2019, the government has considered rolling back the tax exemption on special benefits-in-kind for foreigners, partly in a move to equalize benefits between local and foreign tax resident workers.

To ensure a smooth policy transition, at the end of 2018, the Ministry of Finance and the State Tax Administration jointly announced the Notice on the Preferential Policy Convergence Problem (Cai Shui [2018] No.164).

The Notice introduced a three-year transition period. From January 1, 2019 to December 31, 2021, non-China domiciled tax residents (who do not have a domicile in China and live for 183 days or more in China in a given tax year) can choose to enjoy:

  • The tax-exempt benefits-in-kind; or

  • The six additional itemized deductions.

To be specific, the six additional itemized deductions include:

  • Childrens education expenses

  • Continuing education expenses

  • Housing mortgage interest

  • Housing rent

  • Healthcare costs for serious illness

  • Expenses for taking care of the elderly

The two policies cannot be simultaneously enjoyed by non-China domiciled tax residents during the transition period. And once decided, non-China domiciled tax residents cannot change their preference within a given tax year.

According to the Notice, after the three-year transition period, that is starting January 1, 2022, non-China domiciled tax residents will no longer enjoy preferential tax-exemption policies on benefits-in-kind, including housing, language training, and childrens education.

Instead, the three categories of benefits-in-kind will be replaced by the corresponding additional itemized deductions (that is, housing rent, continuing education expenses, and childrens education expenses).

However, as to the remaining five categories of benefits-in-kind (namely meal fee, laundry, relocation expense, business travel expense, and home leave expense), the policy has not clarified whether they may continue to be tax-exempt.

Given the possibility that the government may abolish the tax exemptions on all of the eight benefits-in-kind, or the tax bureau may become more rigorous in approving the tax exemptions on the remaining items, employers should prepare for possible changes as early as possible to avoid concerns from expatriates, said David Niu, Senior Manager in the Human Resources Administration and Payroll Services team at Dezan Shira & Associates Beijing office.

Compared with the six additional itemized deductions, the eight tax-exempt benefits-in-kind are believed to be more beneficial to expatriates who have a higher income and level of expense.

The tax-exempt benefits-in-kind are deducted based on the actual cost of each expenditure, although the amount is subject to the limit of a reasonable amount, which is based on the local living standard, consumption level, market price, etc., and, a proportion of around 30 to 35 percent of the expatriates monthly salary is usually acceptable by the tax authority.

Large multinational companies (MNCs) may face the increased budget cost of dispatching personnel in China. For the sake of cost control, the headquarters of these companies will need to be more prudent and agile in planning the dispatching of employees to China, Livermore advised.

David Niu also added: In fact, some regions of China have been introducing preferential IIT policies to reduce the tax burden on foreign talents. For example, relocation to Greater Bay Area has become a strategy for some multinationals.

Currently, the Guangdong-Hong Kong-Macao Greater Bay Area offers IIT subsidies to high-end and urgently needed foreign talents (including those from Hong Kong, Macao, and Taiwan), which can substantially lower their IIT rate to 15 percent until the end of 2023. Hainan Free Trade Port also introduced a similar IIT preferential policy for high-end and urgently needed foreign and domestic talents until the end of 2024. Other regions may also consider similar policies so as to stay competent in attracting talents, Niu said.

With a large professional team of tax, HR, and legal experts located throughout China, Dezan Shira & Associates has been providing professional human resources, payroll, tax, legal advisory services, and China individual income tax briefing for our clients. For more information and assistance on salary structure adjustment, labor contract modification, and staff re-allocation, you are welcome to consult our experts and mail us at [email protected].

About Us

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at [email protected]

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.



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