China Tax: Year-end bonus and treatment of deductible allowances for expats from 2019
The Ministry of Finance and the State Administration of Taxation have jointly issued, on December 27, 2018, the Circular Cai Shui  no. 164 about the “Convergence of preferential policies after the revision of the Individual Income Tax Law”.
The Circular provides important clarifications about two issues that mainly concern the foreign employees working in China after the amendments to the Individual Income Tax Law, which are the tax treatment of the year-end bonus and the deductible allowances for expats.
According to the Circular, the preferential tax treatment for the year-end bonus in compliance with Guo Shui Fa  no. 9 “Notice of the State Administration of Taxation on Adjusting the Method of Calculating and Imposing Individual Income Tax on Annual One-off Bonuses and other Benefits Obtained by Individuals” can be enjoyed until December 31, 2021.
The taxpayer can enjoy the preferential tax calculation dividing the year-end bonus by 12 and determining the applicable tax rates, without including the bonus amount into the comprehensive income.
Alternatively, tax residents can also choose to include the bonus into the comprehensive income.
From January 1, 2022 tax residents receiving the year-end bonus shall include the amount received into the comprehensive income of the year and calculate the personal income tax accordingly.
Deductible allowances for foreign individuals
From January 1, 2019 to December 31, 2021 the foreign employees who are tax resident in China may choose to enjoy the special additional deductions of personal income tax or, alternatively, to continue to follow preferential allowances for housing, language training, children’s education etc… as provided by Caishui  no. 20 “Circular of the Ministry of Finance and the State Administration of Taxation on Issues concerning Individual Income Tax Policies”, Guo Shui Fa [1997[ no. 54 “Circular of the State Administration of Taxation on Imposing and Exempting Individual Income Tax on Qualifying Subsidies Granted to Foreign Individuals” and Cai Shui  no. 29 “Circular of the Ministry of Finance and the State Administration of Taxation on Exempting the Hong Kong or Macao Housing Subsidies Received by Foreign Individuals from Individual Income Tax”.
From January 1, 2022 the foreign employees will no longer be allowed to enjoy the preferential allowances currently granted to them; these employees may instead start to enjoy the special additional deductions if they are entitled.