Member Update July 2023: Tax exemption for non-cash benefits for foreign nationals set to expire by end of 2023 Go back »
2023-07-21 | All chapters
Since 1997, Guoshuifa [1997] No. 54 has allowed employers of foreign nationals to grant non-cash benefits, like housing rental, school tuition fees, home flights and relocation costs, among others, to their foreign employees free of individual income tax (IIT), provided valid invoices are provided.
As per Caishui [2018] No. 164 and the Announcement of the Ministry of Finance and the State Taxation Administration [2021] No. 43, this tax exemption treatment is set to expire on 31st December 2023, i.e., by the end of this year.
This will result in a significant cost increase for all employers of foreign nationals with regard to the above-mentioned non-cash benefits.
There is a simplified calculation in the attachement which illustrates the potential impact for an assumed case of a foreign employee with three children (with tuition fees of CNY 250k per child), annual housing rental of CNY 300k, a personal tax rate of 45 per cent and an agreement that the employer will bear the cost.
The European Chamber is advocating, in writing and through discussions with the relevant authorities, that the existing regime of non-taxation of non-cash benefits be retained for foreign nationals. If you have not yet done so, you may want to review to what extent your company will potentially be affected and initiate communication on this matter.