Tax authorities have put an increased focus on foreigners’ Individual Income tax (IIT) payments. For example, recently, many companies in Beijing have been requested to do a self-check on expatriate IIT compliance status including both regular tax payments and the eligible tax-free allowances.
Experts Mr. Ken Lee and Ms. Amanda Li from Lee & Lee Associates were invited to deliver a seminar for financial workshop of Danish Chamber of Commerce in China on June 19th, 2015 with topic Foreigners Tax Audit. Due to that the expatriate tax regulations are not specific, practically, many companies are doing the tax filing and calculation according to their own understanding which could be non-compliant and would therefore trigger back payment of underpaid IIT, late interest penalties and fines. Mr. Ken Lee and Ms. Amanda Li explained related regulations and focused on important points to pay attention to, which are also often neglected.
- Calculate foreigners’ taxable days in China accurately.
- Taxable insurance type: overseas insurance must pay tax; about domestic insurance, up to now, only pension insurance is free from tax, but there will be a new policy very soon to state which other domestic insurances could be exempted from tax.
- Eight tax-free allowances:
a. The allowances are for foreign employees themselves only. Those for their family members must be combined with salary to pay tax.
b. Moving expense allowance must be caused by taking or leaving office of the foreign employees. Such allowance in a regularly manner, e.g. monthly, is regarded as unreasonable and cannot be tax-free.
c. Home leave expense can only be tax free when the flight/train ticket happens between the company’s city and the foreign employee’s home city/parents’ city /spouse’s city. And twice round-trip tickets at most in one year don’t need to pay tax.
d. Language training and education expense: must happen in China (including Hong Kong and Macau).
Other allowances which are not in accordance with the tax-free regulations, such as foreign employees/their family members’ medical expense, travelling expense, shopping card, cinema ticket, as well as subsidy given by overseas company must be included into taxable income of that month.
4. One time annual bonus: taxable rate and quick deduction are determined by dividing the bonus into 12 months, but the taxable base is the total amount of the bonus. In addition, this method can be used for only once for one foreign individual within a tax year. Other types of bonus, such as work overtime bonus, attendance award, must be incorporated into salary of that month to pay IIT.
5. If you don’t declare IIT, or zero declaration, or declaration under benchmark, it is easy to cause tax authorities’ attention. You had better keep the same standard with related country and industry.
If you need a professional health check or tax planning on expatriate IIT, please feel free to contact us at info@lla.cc.
