what we think

By Fabian Knopf and Maarten Roos

In a recent move, the Ministry of Finance and the State Administration of Taxation have jointly issued two announcements, each designed to reduce the financial load on taxpayers in China. These announcements concern the continuation of the individual income tax subsidy policy for foreign individuals, and the current preferential one-time bonus tax policy for both foreigners and Chinese. 

Both these policies mark an extension of current policies which otherwise would have expired at the end of the year. By announcing these extensions now, the Chinese government is creating a high level of transparency that is another positive sign for international businesses operating in China. 

1. Individual Income Tax Benefits for Foreign Individuals (Announcement No. 29 of 2023)

Foreign individuals residing within a country often play a vital role in its economy, contributing skills, knowledge, and investment. Acknowledging this, the Ministry of Finance and the State Administration of Taxation have unveiled a renewed commitment to ease the tax obligations of foreigners working in China.

Foreign individuals can continue to benefit from existing tax exemptions for housing, children's schooling, language training fees and other subsidies. This move showcases the government's commitment to attracting and retaining foreign talent, and is good news for the expat communities in Shanghai, Beijing and across China.

2. One-Time Annual Bonus Individual Income Tax Policy (Announcement No. 30 of 2023)

Annual bonuses will continue to be treated as separate income and are therefore taxed at much lower tax rate compared to regularly-taxed income. While this policy has the biggest effect on high-income earners including foreigners, the policy also benefits regular employees and gives companies more room for proper tax planning. 

As these policies take effect, individuals, companies and the Chinese economy as a whole stand to benefit from reduced tax burdens that attract international talent and encourage economic growth.

R&P is a full-service law firm. We also support foreign clients and their Chinese subsidiaries on tax-relates issues in China. Many clients outsource their administrative and compliance functions to R&P's affiliate Acclime China, which provides a full range of administrative services including treasury, payroll, and accounting + tax filing assistance. For more information, please contact Maarten Roos (roos@rplawyers.com) or your regular contact at R&P.