The extended individual income tax preferential policies for foreigners
At the end of 2021, the Ministry of Finance and the State Administration of Taxation have issued several announcements to extend the individual income tax preferential policies. MYA summarized the related policies to the foreigners as follows:
Tax-exemption policy on allowances and subsidies for foreign individuals
Legal Basis: According to Cai Shui [2021] No. 43, the implementation period of the tax-exemption policy on allowances and subsidies for foreign individuals is extended to December 31, 2023.
Apply to: The foreign individuals who meet the conditions for resident individuals. (Non-resident individuals are not applicable to the selection method, but they can enjoy tax exemption for related allowances.)
Policy impact: By the end of 2023, the foreign individuals meeting the conditions for resident individuals can choose to enjoy either the preferential tax-exemption policies on allowances in accordance with Cai Shui Zi [1994] No.20 and Guo Shui Fa [1997] No.54, or to enjoy the additional special deductions to taxable income.
The preferential tax-exemption policies for foreign individuals include: subsidies for housing, meal and laundry, relocation allowance, domestic and overseas business trips subsidies, family visit subsidies, language training and children's education subsidies, etc. The taxpayers shall keep the relevant expenditure vouchers or certification documents for obtaining the above-mentioned allowances in China for the competent tax authorities reviewing. The additional special deductions for individual income tax includes children’s education, continuing education, medical treatment for serious illnesses, housing loan interest or housing rent, and support for the elderly. Each additional special deductions could enjoy the different amounts of deductions from the taxable income at monthly basis.
The taxpayers should compare the amount of tax-free items with the amount of deductions when choosing the applicable method. after making such choice, foreign individuals cannot make changes within a tax year.
2. Annual one-off bonus personal income tax preferential policies
Legal Basis: According to the Cai Shui [2021] No. 43, the implementation period of the policy on the annual one-off bonus, is extended to December 31, 2023.
Apply to: The resident individuals. (Non-resident individuals are not applicable to the selection method, and the tax payable is calculated by applying bonuses for several months.)
Policy impact: According to Cai Shui [2018] No.164, the annual lump sum bonuses obtained by resident individuals shall be separately taxed on the basis of the amount by dividing the annual lump sum bonuses by 12 months, subject to the applicable tax rate and the sum of quick calculation deduction. Or the annual lump sum bonuses obtained by resident individuals may also be included in the consolidated income of the current year for the purpose of calculation and payment of tax.
Generally, higher-income earners will choose the annual one-off bonus to be taxed separately, which means that lower tax rates will be applied to one-time bonuses throughout the year and reduce the individual income tax.
