On 1 January 2019, reforms in China’s Individual Income Tax (“IIT”) were effective. IIT reforms ease tax burdens for lower-income earners and provision higher taxes for high-income earners – both foreign and domestic individuals.

For foreign employees in China, further IIT changes from 1 January 2022 shall heavily impact the net salary.

Effective from 1 January 2022, previous tax allowances for foreigners classified as tax residents (“foreigners”) in China will be subject to taxation. The expenses such as children’s education, housing rent, language training expenses  will be taxable.

Many foreigners could face significant cuts to their net salary. Dependent on the labour contract and whether the salary is fixed as before tax or after tax, companies may also face increased labour costs.

Changes in the calculation of year-end bonus is another IIT reform affecting all employees in China.

Currently, the year-end bonuses is calculated and taxed separately from other taxable income. The current calculation is an important fiscal benefit for many employees. 

From 1 January 2022, the year-end bonus will be taxed as part of the salary and will be included in the annual comprehensive income calculation and declaration. In other words, the net income of the year-end bonus could be substantially lowered.

Therefore, 2021 is the last year foreigners and companies can still benefit from the preferential fiscal treatments, as accordingly to the previous legistration. As an foreigner working or foreign company in China, it is important to act promptly and seize the opportunity!

Horizons may provide professional assistance of this topic with a team of legal and tax professional experts in such matter. If you need support, please contact Horizons at country.partners@horizons-advisory.com and we will assist you to find the best solutions.