China takes another step to maintain reduced tax burden for foreign individuals. On 18 August 2023 the State Administration of Taxation released Announcement No. 29 of 2023, which outlines that the personal income tax policy on allowances and subsidies for foreign individuals has been extended until 31 December 2027.
Foreign individuals who meet the individual conditions of residents can choose to enjoy the special additional deduction of individual income tax. These tax-exempt benefits fall under eight distinct categories:
1) Housing rental expense
2) Education expense for children
3) Language training expense
4) Meal fee
5) Laundry fee
6) Relocation expense
7) Business travel expense
8) Home leave expense
These benefits are technically known as benefits-in-kinds (BIKs), which refers to additional perks not included in the salary and wages. They are paid on reimbursement and non-cash basis. For a BIK to be exempt from Individual Income Tax (IIT), the expense must be reasonable in amount and there must be associated proof like invoices (fapiao), for each expense.
Alternatively, it is possible for foreign individuals to enjoy the “six itemized deductions”:
1. Children’s education expenses (RMB 1,000 / month / child)
2. Continuing education expenses (RMB 400 / month for up to 48 months and RMB 3,600 in the year when the certification is issued)
3. Housing mortgage interest (RMB 1,000 / month for up to 240 months)
4. Housing rent (up to RMB 1,500 / month)
5. Healthcare costs for serious illness (up to RMB 80,000 / year based on actual expense)
6. Expenses for taking care of the elderly (RMB 2,000 / month)
Taxpayers must pick either the eight-category benefits or the six itemized deductions as the two policies cannot be simultaneously enjoyed. Once chosen, the foreign tax resident in China cannot change their preference within a given tax year.
In conclusion, the renewal of this policy is beneficial for foreigners working in China, as they can continue to enjoy a preferential tax treatment, which is more advantageous than the standard “six itemized deductions”.
Fidinam can help
Understanding the complexities of China's tax regulations can be challenging. Whether you're a foreign individual aiming to maximize these benefits or an organization looking to optimize its tax strategies for international employees, our team of seasoned tax consultants in China is ready to assist.
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