{"id":7368,"date":"2021-03-22T10:50:07","date_gmt":"2021-03-22T10:50:07","guid":{"rendered":"https:\/\/focus.cbbc.org\/?p=7368"},"modified":"2025-04-23T09:54:15","modified_gmt":"2025-04-23T09:54:15","slug":"hiring-a-foreign-national-in-china-will-soon-become-a-lot-more-expensive","status":"publish","type":"post","link":"https:\/\/focus.cbbc.org\/hiring-a-foreign-national-in-china-will-soon-become-a-lot-more-expensive\/","title":{"rendered":"Why hiring a foreigner in China may soon be too expensive"},"content":{"rendered":"

The cost of hiring a British or other foreign national in China is set to grow by as much as 30% by 2022, depending on how the company structures its contracts with foreign workers. Joe Cash explains.<\/h2>\n

Next year\u2019s increased costs of employing foreign workers comes as a result of changes to the Individual Income Tax (IIT) system planned for 2022, in line with amendments to China\u2019s tax code that were first proposed in 2018. These changes will see certain allowances \u2013 such as the cost of rent, school fees and language training expenses \u2013 suddenly become taxable for companies that employ foreign employees, significantly increasing the human resource costs for companies seeking to post expatriate staff to China.<\/p>\n

The Chinese authorities are replacing the previous IIT policy with a new system of special tax deductions, available to both foreign and non-foreign employees alike, which will be applied on a more equal basis but at much lower levels.<\/p>\n

The impact of the tax changes will be significant and could double the amount on which a company is taxed if it wants to post an expatriate worker to China (see illustration below).<\/p>\n

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China proposed reforms to its IIT system at the beginning of 2018 when the government announced draft amendments to China\u2019s Tax Code. As one of these amendments, the IIT Law was passed by the Standing Committee of the People\u2019s Congress in June 2018, before coming into force in January 2019. The IIT Law was introduced with a three-year transition period to help companies and taxpayers move from the old IIT system to the new, but that transition period comes to an end in 2022. The amendments also included new rules modifying how China determines who is a tax resident, income tax brackets, and the ways and means China can tax people on their global income.<\/p>\n

The following example shows how these changes to the IIT system will increase the amount on which a company is taxed were it to employ a foreign expert with an accompanying partner and two children in the highest IIT tax category (45%):<\/p>\n

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As the chart demonstrates, the amount the company will be taxed significantly increases under the new system as the \u2018allowances\u2019 have become taxable, whereas under the previous system they could be removed from the company\u2019s tax bill. An assessment by the German Chamber of Commerce in China has concluded that this change to the IIT policy will cause the average mid-sized German company operating in China to have to start paying 30% more in tax if it continues to compensate its employees for housing and education, as many are currently contractually obliged to.<\/p>\n

On the reverse, if the additional costs were to start being borne by the employee, the total reduction of the monthly net salary would be around 11%, according to the German Chamber\u2019s study. But depending on the personal situation of the employee, this could increase to as much as 50% if benefits constitute a larger part of their remuneration.<\/p>\n