Tax-Free Allowances for Expats 2023
Foreign employees resident in China can choose to claim the special additional deductions or continue applying the preferential tax-exempt benefits accessible to all expatriates until the end of 2023, according to the the Circular no. 43 on the Continuation of the Preferential Policies on Individual Income Taxes such as Foreign Personal Allowances and Subsidies, issued in 2021. Circular no. 43 extended the implementation of the preferential policy on tax-free allowances and subsidies for foreign individuals, repealing the provisions included in Circular [2018] no. 164 issued in 2018. However, it is still not clear whether foreign employees will be also allowed to enjoy the preferential tax-exempt benefits after December 31, 2023.
These preferential tax-exempt benefits include housing rent, meal fee, laundry fee, relocation expenses when starting and ending an assignment in China, business travel in or outside China, home leave (up to two round trips in a calendar year for expatriates only), language training in China and children's education in China. The tax-exempt benefits must be proved by valid corresponding documents such as official invoices (fapiao) and agreements (for example, leasing agreement), and Chinese tax authorities may require employers to submit these documents for review when the monthly IIT declaration is filed. The tax-exempt fringe benefits can be fully deducted based on the actual cost of each expenditure. Tax-exempt benefits shall be a “reasonable” amount in line with the local living standard, consumption level and market price. According to Chinese tax authorities around 30 to 35 % of the expat’s monthly salary is considered as “reasonable”.
From January 1, 2024 expats shall evaluate potential new policies and specific tax incentives in different cities and provinces.
Expats will still be able to enjoy in 2024 the seven categories of special additional deductions of personal income tax that are eligible for both national and foreign employees:
Nursing expenses for children under three years old
Children’s education expenses,
Continuing education expenses
Housing mortgage interest
Housing rent
Healthcare costs for serious illness
Expenses for taking care of the elderly
Each category has a maximum amount that can be deducted every month on a standard basis without regard to the actual expense carried out in that month.