New Year’s Gift for Expatriates in China

published on 4 January 2022 | reading time approx. 1 minute

On the last day of 2021, the State Administration of Taxation (“SAT”) gave one last big “gift” to foreigners working in China: the extension of IIT exemption treatment on housing, children’s education as well as language training allowances until the end of 2023.

The former tax regulation on the abolishment of these allowances from 2022 has been causing wide attention and discussion over the past 2021, though luckily with a happy ending. Foreigners working in China can remain their former remuneration structures, keep the allowances for their necessary living expenditures and don’t have to worry about the surge in their income tax burden in China for at least the coming two years.

It is still noteworthy that documentation requirements are critical for enjoying the tax-exempt allowances as before. It is recommended to keep valid and consistent contracts and invoices for housing rentals. The children’s education expenses should be incurred with registered educational institutions in China. The daily meal and laundry allowances are still tax-exempt while the provision should be in a reasonable amount. Furthermore, the tax-exempt allowances are required to be reported in detail during the monthly IIT filings by the employer as the withholding agent. From our practical experience, it is for sure that local tax authorities are taking constant supervision of the amounts of tax-exempt allowances enjoyed by foreigner employees. Tax inspection as well as adjustments in tax filings will be launched by tax authorities in the cases of tax exemption applied to unreasonably high allowance amounts.