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Count-down for Expats to Enjoy Tax-free Allowances 外籍人士免税补贴倒计时

The current Individual Income Tax Law allows foreigners to enjoy allowances, such as rental, meal, children’s school fees, and so on, which can be deducted from the taxable income; therefore, reducing the individual income tax (IIT) payable.



To be precise, from January 1st , 2019 to December 31st , 2021, foreigners in compliance with the qualification as residence, can choose to have individual income tax special additional deduction, or to enjoy allowances on housing, language training, children’s education and other tax free subsidies. Once the foreigner chosen the type, within one taxable year, the choice cannot be altered.


Since January 1st 2022, the option would be gone. One can only have the individual income tax special additional deduction just like local residents, there will be no more special treatment for foreigners living in China considered as residents on individual income taxation.


To be precise, from January 1, 2022, the allowances currently available for foreign professionals become fully taxed. This means that the allowances will become part of the gross salary and, as such, be taxed at the related tax bracket.



The result of this is that, either the employee will receive a much lower net salary (since the allowances will effectively become part of the salary and won’t be separated any longer), or the company cost on the employee will nearly double (given that a 45% IIT will likely apply to the overall salary package).


For most expats maybe it will not be as high as 45%, yet the increase in tax can be still substantial.


Reindeer Station’s tax expert made a case to explain the change.


Case Study


One expat working in Ningbo fits the resident profile, hence have to pay individual income tax. His salary is RMB 18,000 per month, consists of RMB 13,000 base salary, with RMB 5,000 housing allowance.


Taking the remuneration package unchanged since 2021 to 2022, then,


In 2021, he chose to enjoy the foreigners special treatment on income tax, every month, his housing allowance of RMB 5,000 will be deducted before calculating income tax payable. After calculation as below, his annual income tax would be RMB 7,080.


In 2022, he can only use the individual income tax special additional deduction, on the housing expenses. In Ningbo, the fixed deduction amount on housing is maximum RMB 1500 per month, therefore as the calculation below, annual income tax would be RMB 11,280, increased from last year.

在2022年,他只能使用个人所得税专项附加扣除住房相关项目。在宁波,固定最高额度的扣除为1500元每月,于是,年个税总计如下图计算为11280元, 较上年增加。

Of course the case would be more complicated, especially when the expats used to enjoy multiple allowances such as children’s education, the tuition fee can be easily up to RMB 200,000 to 300,000 per child per year. This change of tax policy seems to affect more to the high income expats lives in big cities.


Nevertheless, paying tax is an obligation, but saving money legally on tax can be done with professional knowledge. Either as an employee or as an employer, sometimes with the optimal combination of remuneration package, you can all save a substantial amount of tax money.


Contact us for professional taxation consultation.




宁波灵达商务服务有限公司    备案号:2020037656号-2