Employee Remuneration - Explanation of Foreign Employee Subsidy/Welfare and Levy of Individual Income Tax


Date:  2018-06-30    Autor:   HAN, Cathy

Keywords: IIT of foreignemployee, tax-exemption benefits

According to the implementing Regulations of the Individual Income Tax Law of the People's Republic of China, the scope of the income categories described in Article 8(1) stipulates: The term "wage and salary income" shall mean wages, salaries, bonuses, year-end bonuses, profit shares, subsidies, allowances earned by individuals by virtue of the holding of any office or employment and other income earned by individuals relating to the holding of any office or employment.

Individual Income Tax Law also indicates individuals' personal welfare benefits, whether cash or in kind, are subject to individual income tax. However, currently the tax bureau regards the collective welfare, indivisible and non-cash welfare, in principle, does not levy individual income tax.

Individual Income Tax Exemption Benefits - According to the provisions of Taxation [1994] No. 20, the following income is exempt from individual income tax:

Tax  exemption subsidy/allowance

Detailed  regulations

Application  method

Rental allowance

Subsidies  for housing, meal and laundry obtained by a foreign individual in the form of  non-cash or reimbursement upon receipts shall be subject to exemption  from individual income.


Additional expenses such as rental management fees, utility bills, broadband  fees, cleaning fees, and safe rental fees
should not be  used as housing allowances to enjoy tax  exemptions.

Relevant  valid vouchers and certified documents in accordance with regulations should  be provided, and review by the tax bureau.

Meal allowance

Laundry fee

Relocation fee

A foreign  individual tax payer shall provide effective certificate of relocation  allowance he/she obtained in the form of complete reimbursement due to taking  or leaving office in China.

subsidies  paid by monthly or regularly shall be deemed as salary income  subject to individual income tax.

Relevant  valid vouchers and certified documents in accordance with regulations should  be provided, and review by the tax bureau.

Business travel allowance;  Communication allowance

Domestic  and foreign business travel subsidy obtained by foreign individuals according  to reasonable standards is exempted from individual income tax

Relevant  valid vouchers and certified documents in accordance with regulations should  be provided, and review by the tax bureau

Family visiting fee

No more than 2 times a year, mainly for transportation  expenses, not including restaurant, accommodation fees

Relevant  valid vouchers and certified documents in accordance with regulations should  be provided, and review by the tax bureau

Language training fee

Includes:

Language  training fees for language training in China and for children’s education in  China

Excludes:

1. Overseas  education fees (Fees paid for education outside China)

2. Non-education  expenditures such as meals, school bus fees, etc. for foreign employees'  children during school hours

3. extra  circular activities and fitness fees

Relevant  valid vouchers and certified documents in accordance with regulations should  be provided, and review by the tax bureau

Children education fee, etc.

Resignation compensation; social  security; housing fund; hardship subsidies; misfeeding allowance etc.

Same  application standard as Chinese employees

Same  application standard as Chinese employees

Subsidy of private car for  business use

No tax  exemption

The income  paid to employees in the form of cash, reimbursement, etc. for the official  vehicle system reform should be regarded as an individual earning official  vehicle subsidy income, and individual income tax should be calculated  according to the items of “wage and salary income”.

Related regulation reference:

1.     Circular of the State Administration of Taxation on the Relevant Standards for the Implementation of Individual Income Tax Deductions for Family Visit expenses Incurred by Foreign Individuals(Guo Shui Han [2001] No. 336)  

2.     Regulations issued in Guo Shui Fa [1997]No.54

3.    Guo Shui Han [2001] No. 336 and Eight guidelines on subsidy verification for foreign individuals



4.    Circular of State Administration of Taxation (SAT) on Relevant Issues concerning Individual Income Tax (IIT) Collection on the Car Subsidies to Individuals Because of the Reform of Using Business Cars No.1 



5.    Circular of the State Administration of Taxation on Issues concerning the Policies on Individual Income Tax (Guo Shui Fa [1999] No.58)



6.    Implementing Regulations of the Individual Income Tax Law of the People's Republic of China No.8



7.   Individual Income Tax Law of the People's Republic of China and Circular of the Ministry of Finance and the State Administration of Taxation on Issues concerning Individual Income Tax Policies(Cai Shui Zi [1994] No.20


8.    Cancellation and Adjustment of Administrative Examination and Approval Items (III) (Guo Fa [2004] No. 16) and Circular of the State Administration of Taxation on Issues Concerning the Follow-Up Administration after the Cancellation or Delegation of Several Tax Administrative Examination and Approval Items Relating to Foreign-invested Enterprises, Foreign Enterprises and Foreign Individuals(Guo Shui Fa [2004] No. 80), the State Administration of Taxation has cancelled the examination and approval of exemption of individual income tax on housing subsidies, food allowances, moving fees, laundry fees, travelling allowances, visiting relatives expense, language training expense and children education    expense.


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