No rise in expat tax threshold
By Zhang Fengming |
July 29, 2011, Friday
|
Online Edition
Online Edition
The income tax threshold of 4,800 yuan (US$744) enjoyed by expats in China will remain unchanged when personal tax thresholds are raised.
At present the threshold is 2,000 yuan with an extra 2,800 yuan for expats.
From September 1, China is raising the threshold to 3,500 yuan but the extra sum for expats is to be cut to 1,300 yuan, leaving them with the same 4,800 yuan benefit.
"We've received lots of inquiries from clients about the expatriate deduction," Freeman Bu, an Ernst & Young partner in Shanghai, said yesterday.
"They have argued that the cost of living is also rising for them as inflation is the same for Chinese and expatriates."
"The move is in line with China's aim to revise its tax law to let low and medium income families benefit from tax cuts," said Bu.
"Expatriates are often deemed as high-income earners."
Bu said that expats earning close to 18,000 yuan a month would pay more under the new tax system, which meant that "probably the majority of expatriates will have to pay more on tax." While for Chinese, those earning 38,600 yuan a month will pay more tax.
"The 'standard monthly deduction' for expatriates were 4,000 yuan since 1994, this was increased to 4,800 yuan since 2006 and has remained at this level for the past 5 years, clearly the expatriate population has not benefited from the increase of the exemption threshold and this does lead to a perception amongst many expatriates that the overall tax burden has increased even though they too have been under the same inflation pressures," said Joyce Xu, a Deloitte partner.
She added that the primary objective for the current PRC Individual Income Tax reform is intended to reduce the tax burden for the lower income groups, whilst increasing "moderately" the tax burden for the high income groups.
"Expatriates are traditionally regarded as the "high income group" as such, not surprisingly , the new individual income tax law has not provided visible relief measures to reduce the tax burden of this group," the industry expert said. "This also reflects an 'equalization' in terms of exemption threshold between the PRC nationals and the expatriates. This, viewed in the context of the proposed new social security law where expatriates for the first time will also be paying PRC social security contributions on a compulsory basis, does seem to lead to not insignificant additional tax burden for the expatriates and the multinational companies."
"To better attract the international talent working in China, it is important that at the policy level, the expatriates are also provided with reasonable tax relief and an appropriate balance is trike between the need to alleviate the tax burden for the less well off and at the same time not inadvertently over tax the expatriate group unduely," she added.
Industry experts said the move came as no surprise as the 4,800 yuan threshold was unchanged last time thresholds increased in 2008.
The threshold was raised from 800 yuan to 1,600 yuan in 2006, when expats' extra benefit remained at 3,200 yuan, giving them a total deduction of 4,800 yuan from the previous 4,000 yuan.
The threshold was further raised to 2,000 yuan in 2008.
But the expat extra was cut to 2,800 yuan, leaving their allowance unchanged.
China currently levies tax progressively on personal salaries in nine brackets ranging from 5 percent to 45 percent.
From September 1, the 15 percent and 40 percent brackets will disappear and there will be a new 3 percent rate.
At present the threshold is 2,000 yuan with an extra 2,800 yuan for expats.
From September 1, China is raising the threshold to 3,500 yuan but the extra sum for expats is to be cut to 1,300 yuan, leaving them with the same 4,800 yuan benefit.
"We've received lots of inquiries from clients about the expatriate deduction," Freeman Bu, an Ernst & Young partner in Shanghai, said yesterday.
"They have argued that the cost of living is also rising for them as inflation is the same for Chinese and expatriates."
"The move is in line with China's aim to revise its tax law to let low and medium income families benefit from tax cuts," said Bu.
"Expatriates are often deemed as high-income earners."
Bu said that expats earning close to 18,000 yuan a month would pay more under the new tax system, which meant that "probably the majority of expatriates will have to pay more on tax." While for Chinese, those earning 38,600 yuan a month will pay more tax.
"The 'standard monthly deduction' for expatriates were 4,000 yuan since 1994, this was increased to 4,800 yuan since 2006 and has remained at this level for the past 5 years, clearly the expatriate population has not benefited from the increase of the exemption threshold and this does lead to a perception amongst many expatriates that the overall tax burden has increased even though they too have been under the same inflation pressures," said Joyce Xu, a Deloitte partner.
She added that the primary objective for the current PRC Individual Income Tax reform is intended to reduce the tax burden for the lower income groups, whilst increasing "moderately" the tax burden for the high income groups.
"Expatriates are traditionally regarded as the "high income group" as such, not surprisingly , the new individual income tax law has not provided visible relief measures to reduce the tax burden of this group," the industry expert said. "This also reflects an 'equalization' in terms of exemption threshold between the PRC nationals and the expatriates. This, viewed in the context of the proposed new social security law where expatriates for the first time will also be paying PRC social security contributions on a compulsory basis, does seem to lead to not insignificant additional tax burden for the expatriates and the multinational companies."
"To better attract the international talent working in China, it is important that at the policy level, the expatriates are also provided with reasonable tax relief and an appropriate balance is trike between the need to alleviate the tax burden for the less well off and at the same time not inadvertently over tax the expatriate group unduely," she added.
Industry experts said the move came as no surprise as the 4,800 yuan threshold was unchanged last time thresholds increased in 2008.
The threshold was raised from 800 yuan to 1,600 yuan in 2006, when expats' extra benefit remained at 3,200 yuan, giving them a total deduction of 4,800 yuan from the previous 4,000 yuan.
The threshold was further raised to 2,000 yuan in 2008.
But the expat extra was cut to 2,800 yuan, leaving their allowance unchanged.
China currently levies tax progressively on personal salaries in nine brackets ranging from 5 percent to 45 percent.
From September 1, the 15 percent and 40 percent brackets will disappear and there will be a new 3 percent rate.
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