On August 28, 2023, the Chinese Ministry of Finance and the State Administration of Taxation jointly announced another four-year extension of the preferential income tax treatment on expatriate fringe benefits, through 2027. 

  • The change that would make them taxable was originally announced in 2019 with an effective date of January 1, 2022.
  • In December of 2021, the tax authorities announced a deferred effective date of January 1, 2024, postponing the new tax rules by two years.
  • The new effective date for the change will now be January 1, 2028. 
This extension was granted to strengthen ties with global firms and to help companies retain foreign workers. The extension will bring a level of certainty and tax relief as China moves to attract and retain foreign talent, considering China’s weakened economy.  
Foreign workers in China can continue receiving tax-exempt fringe benefits for housing, children’s education, language training, meal and laundry fees, relocation expenses, business travel, and home leave. These benefits, when reasonable, and paid on a reimbursement or in-kind basis, will continue to be exempt from income tax through December 31, 2027. The expatriate tax concession allows expatriate employees to opt in for the tax-free treatment of the qualifying allowances or to elect to claim standard deductions available to local employees for rent paid, children’s education, and mortgage expenses. In most scenarios, it is more beneficial to claim the expatriate tax concession than the standard deductions.  
On the same day, China also announced an extension of the preferential tax treatment on annual bonuses until the end of 2027. The regime allows for tax on the bonus to be calculated separately, and at lower rates, rather than be combined with other comprehensive income.
Currently, AIRINC’s tax logic in the Assignment Cost Estimator (ACE) for inbounds to China is correctly reflecting this tax-exempt treatment of allowances for inbound calculations.  
In anticipation of the 2024 tax changes, many companies have been preparing to change employment contract terms of expatriate personnel; now they may wish to roll back those decisions in light of the extensions.  
As always, AIRINC’s Tax Department will be tracking developments as they occur. Subscribe to our blog to hear about all the latest tax news.

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Blog created by Pat Jurgens and Jenny Cai.