One of the most welcome regulatory updates for foreign employees and employers in China was released on the last day of 2021. The Ministry of Finance and the State Administration of Taxation issued on December 31, 2021, the Announcement [2021] no. 43 on the Continuation of the Preferential Policies on Individual Income Taxes for Foreign Personal Allowances and Subsidies. The non-taxable fringe benefits for expatriates will maintain its tax-free status for at least 2 more years.

Previously, Announcement [2018] no. 164 issued in 2018 stated that foreign employees working in China can only enjoy the preferential tax-exemption policies for housing subsidies, language training expenses and children’s education expenses until the end of 2021.

This Announcement [2021] no. 43 revised the above-mentioned provision, and extended the implementation of the preferential policy on tax-free allowances and subsidies for foreign individuals until the end of 2023. 

The issuance of this policy is a significant and a very welcome benefit to expatriates in China, essentially meaning that their tax burden will remain unchanged for the next two years. Furthermore, it was previously anticipated that the costs for businesses employing foreigners who enjoy tax-exempt benefits would increase, however, the recent Announcement implies no increase in tax burden for employers as a result.

If you would like to know more about the most recent financial and tax policy developments in China, please contact us at info@phcadvisory.com.