The new tax was originally scheduled to take effect on 15 October, but advisers and tax experts in the market say the fine points are still being worked out.
However, they report that the basics of the plan – which include a personal tax of up to 11% of an individual expat’s salary, capping at a maximum monthly salary of RMB11,688 ($1,837) a month – appear unlikely to change much if at all.
Also under the new regulations, employers of expatriates living in China must also pay – up to 37% of the individual employee’s salary, with a monthly maximum of RMB 4,100 ($644.45) in tax – that is, 37% of a monthly salary of RMB11,688, or around $680 a month.
The annual hit to employers per employee, therefore, would be around $8,160.
A monthly salary of RMB 11,688 a month is roughly three times the average salary in Shanghai. There are said to be around 600,000 foreigners in mainland China, according to the latest census.
Oliver Wickham, the Shanghai-based business director of the Henley Group – which marked 21 years of looking after expatriates in Asia earlier this year with the opening of the Shanghai office – said the impact of the new tax could be “significant” for businesses that employ many expats.
But he echoed others familiar with the new tax in noting that precise details of the new tax regime were only just beginning to come out.
Henley Group organised a seminar for its clients on the subject a few weeks ago, in conjunction with experts from the Shanghai office of the international law firm, Pinsent Masons, Wickham added.
Chas Roy-Chowdhury, head of taxation for the Association of Chartered Certified Accountants, noted that the idea of the tax plan was to “bring expats into line with local workers in China”, and in the process, enable them to receive the same unemployment, pension and health care benefits that locals enjoy.
There is a case for the tax to be made optional rather than mandatory, as it is now, he added.
“While it is highly laudable to put expats on the same benefits footing as local workers, most of these benefits will never be used by expats, either because they will already have private company provision [for health care and pensions], or because they will not be around in China [long enough] to collect a pension [there].”
Foreign employees must participate in the plan for at least 15 years before they can draw on it, according to published reports.
Roy-Chowdhury said it was important that companies operating in China “go and speak to their local tax officials” to find out exactly what the situation in their immediate vicinity is, as this typically varies between regions.
