Preferential Policy for Expat Allowances & Subsidies to Continue
The Ministry of Finance and Taxation on 18 August 2023 announced that tax exemptions on benefits given to foreigners working in China have been extended until 31 December 2027. Benefits including housing rental, children’s tuition fees and language training costs are not treated as part of salary, but instead are treated as refundable expenses on provision of relevant invoices.
Exemption for IIT Declaration Extended
In a move to further reduce the burden on taxpayers, the Ministry of Finance and SAT announced that for individuals resident in China whose consolidated income from 1 January 2024 to 31 December 2027 does not exceed 120 thousand yuan per year but where supplementary tax needs to be declared and paid, or where the annual supplementary tax does not exceed 400 yuan, the individual is exempt from the comprehensive income tax declaration and payment.
Tax Policy on Annual Bonuses to Continue
China’s Ministry of Finance and State Administration of Taxation (SAT) announced on 18 August that the current tax treatment of annual lump-sum bonuses is to continue until the end of 2027.
Under this policy, an annual bonus amount is excluded from the employee’s comprehensive income for the current year, that is the income on which the applicable individual income tax rate and quick deduction are calculated. Instead the bonus amount is divided into monthly parts for the purpose of tax treatment, and subject to tax at the monthly applicable tax rate.
Tax Deductions Increase
The State Council has issued a Notice on raising the standard for special additional deductions for Individual Income Tax (IIT) in order to further reduce the tax burden on families. The adjusted deduction has been backdated to take effect from 1 January 2023.
Included is care for infants and young children under the age of 3: the deduction has been raised from 1000 RMB to 2000 RMB for each infant and toddler per month
Children’s education special additional deduction: the deduction has been raised from 1000 RMB to 2000 RMB for each child per month.
Special additional deduction standard for supporting the elderly: the deduction has been raised from 2000 RMB to 3000 RMB per month.
Annual Employer Declaration
Beginning on 17 July and lasting to 31 October 2023 the Shanghai Human Resources and Social Security bureau is carrying out the Annual Employer Declaration in accordance with the “Regulations on Labour Security Supervision”.
All enterprises and state organs and institutions in Shanghai are required to declare data related to the actual employment situation of their employees, both Chinese and foreign.
Fifth National Economic Census
China’s State Council, in line with the Statistic Law of PRC, has decided to conduct a National Census to analyze the scale, distribution and development of China’s secondary and tertiary industries and the basic situation of all types of organizations. The Census started in August 2023 and Census Official Census registration is 1 January 2024.
Information required includes basic information of each enterprise and financial statements. Enterprises that falsely report, conceal or fail to report the information will be subject to administrative punishment according to the law and publicized on the National Credit Information sharing platform and the National Enterprise Credit Information Publicity System, on the “Credit China” website.
Focus on VAT of Export Trading Companies
According to Notice 39 released by the Ministry of Finance and the State Administration of Taxation on “export goods and service VAT tax exemption” [2012] trading companies carrying out export without any domestic sales are exempted from VAT. The non-deductible-refunded Input VAT must be transferred out and adjusted to the expenses account.
According to Notice 36 released by Ministry of Finance and the State Administration of Taxation on “The Comprehensive Implementation of the Pilot Project of Replacing Business Tax with Value-added Tax” [2016] the input tax of the following items must not be deducted from the output tax: collective welfare, purchased goods for personal consumption, processing, repair, repair labour services, services, intangible assets and real estate.
When Input VAT cannot be classified and deducted for VAT exempted items, taxpayers should calculate the non-deductible input tax according to the following formula:
Non-deductible input tax =
Input tax that cannot be divided in the current period x
Sales of VAT exempt items / Current sales
Focus on Labour Dispatching Contracts in China
“Labour dispatch” is regulated by Section 2 of the PRC Labour Contract Law and “Interim Regulations on Labour Dispatch” (MOHRSS Order No. 22). According to the Interim Regulations, the contract signed between the labour dispatch agency and the dispatched employee should have a fixed employment term of at least two years.
According to Article 59 of “Labour Contract Law of the People’s Republic of China” a labour dispatching company must sign a labour dispatch agreement with the company that accepts the dispatched personnel. The labour dispatching agreement must stipulate the dispatched positions and the number of personnel, the dispatch period, the amount and payment method of labour remuneration and social insurance, and the liability for breach of the agreement.
The company can stipulate in the dispatching agreement the form of salary payment for the dispatched personnel. The salary can be paid by the dispatching company directly, in which case it is compensated by the dispatch fee the utilizing company pays the dispatching company. Alternatively, the company that is using the dispatched personnel can act as a conduit for the salary. In either case, the dispatched employee establishes the labour relationship with the dispatching company not the labour utilizer.
According to the provisions of Article 92 of the Labour Contract Law, if the dispatching company violates the law and infringes upon the rights and interests of dispatched employees, the company utilizing the personnel bears joint liability.
China Export Tax Refund Policy
China’s State Taxation Administration has released Announcement No. 9 on Relevant Matters concerning “Further Facilitating Export Tax Rebate Process and Promoting the Stable Development of Foreign Trade”.
The announcement deals with the following:
– simplifying the handling procedures for export tax refund/exemption;
– improving the classified administration of enterprises eligible for export tax refund/exemption;
– optimizing the administration of export tax refund/exemption filing documents;
– improving the export tax refund policies for the processing trade;
– streamlining the materials required to be submitted for export tax refund/exemption and improving the foreign exchange receipt for export tax refund/exemption.
According to the announcement the processing time for export refund will be shortened from seven working days in 2021 to within six working days in 2022.
China Banks Strengthen Control of Corporate Accounts
According to the “Notice of the general office of the China Banking Regulatory Commission on strengthening the prevention and control of operational risks and cases of foreign banks” version 2012 [113] issued by China Banking and Insurance Regulatory Commission, for any payment transfer above USD 100,000, bank personnel are required to call two persons to confirm the payment process, otherwise the payment will be suspended.
