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China: All benefits taxed from from 2022?

China: All benefits taxed from from 2022?

Postby mathphyschap » Tue May 07, 2019 2:29 am

Hello all,

Me: currently teaching in a tier1/tier 2 international school in Beijing

There are discussions/rumours going around our school that from Jan 1 2022 all benefits, including tuition for children will become taxable benefits in China, i.e. Accommodation, Flights, Tuition, Medical Insurance etc. All these benefits would be ADDED to your salary (pushing you up the progressive tax table) and taxed at your marginal tax rate (likely to be 30-40% at a tier1 ish school)

This is some way away but could shake up the Chinese international school market quite a lot

i.e. Monthly Benefits:
Accommodation: 10 000 RMB / month
Flights: 24 000 yr/12 = 2000 / month
Tuition for one child: 200 000 yr / 12 = 16 700 / month
Food/Bills Allowance = 2000 / month

Total Monthly Benefits (currently tax free) = 30 700
IF taxed at marginal rate of 35% = 10 700 RMB / month extra tax (about USD 1600 / month extra tax)

Has anyone else heard anything about this? If it actually happens and if schools don't cover the costs then that's a big downgrading of a major employer on the international scene.

Might also mean China comes off the list of possible countries for teachers with children (for better or worse)
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Response

Postby PsyGuy » Tue May 07, 2019 3:48 am

Theyve been talking about it since 2015/2016, its not going to be the crush youre imagining.
Flights will equal zero, they will be booked on ledger as ordinary business expenses of the IS, just like when Google sends an employee to meet with a client in X city, the travel cost is a business expense not employee compensation (this will of course be a problem for dependents).

Accommodation will likely be accounted for the same as a business expense and not as compensation, this might require a little more creative accounting or organization either a per diem allowance or provided housing. ISs might obtain housing and then rent it to their ITs at far, far below market cost. The cost for single/ and couple housing is far less and thus the tax obligation less as well.

Utilities allowances will probably just be taxed, though potentially they could be rolled into a per diem again as above or do the reimbursement between AYs or terms outside of China.

Tuition waivers/seat places will be accounted for and taxed at actual cost not the retail value. The global average on a waiver/place is 10,000 and Chinas is probably half that, which yes will be taxed and will increase the tax burden.

For singles and couples the changes arent going to amount to much, most of the upper tier ISs will just absorb the tax cost. For families and especially those tuition/fee waivers/seats are going to make China less attractive to IT families, especially in lower tier ISs that arent going to be very transparent on what the taxes are. Its probably going to change the demographic some. Lower tier ISs will shift their priorities to a degree towards the ET and ESOL market for young, single and cheaper staff. For upper tier ISs its not going to change much if anything. The top tier ISs have the best compensation even with higher taxes, and its not like the loer tier ISs can avoid the taxes so everyone is on the same footing. Besides where else are they going to go, China is already a hardship region and it has the jobs. What are the options? All the better regions in Asia have similar tax structures and they cant possibly absorb the supply of ITs. Its not like China has to sorry about some kind of IE strike. For all practical purposes all its really going to do is balance the comparison between China and the ME. The saving potential for China will fall making the savings potential of the ME more attractive. There simply arent the appointments and vacancies for ITs to evacuate China for Vietnam, or Myanmar, or Cambodia or any of the little tigers or Thailand, or all of Asia combined. China is to Asian IE what a cars entire chaises is to being a car, without it its just an engine and some wheels.
Just looking at some rough numbers, there are 788private IB ISs in the Asia/Pac region, of those 130 are in Mainland China, 56 are in HK and another 2 in Macao for a total of 188 thats 24%, or about a quarter of the private IB ISs in the Asia/Pac region in a single country. The second highest in the Asian/Pac region is JP with 63 and thats a third of China, and thats just IB.

So yeah, China will cost more for IT families making it less attractive, but China ISs will adapt and thats just the way its going to be.
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Re: China: All benefits taxed from from 2022?

Postby expatscot » Wed May 08, 2019 10:27 pm

Not a rumour - that's what's going to happen.

Schools will be able to directly own accommodation and allow staff to live there, and this will not be taxed, but the usual tradition of seperate allowances will be. All the rest will be taxed.

At the moment employees are being given the choice of taking the hit now, or in 2022 - not surprisingly, most are going for 2022! It is starting to have a consideration though for staff who might otherwise have stayed beyond 2022 and that's something which schools are looking at. The 5 year rule though has become 6 and the threat of taxing all earnings outside of China (including property rental) from the outset has been ditched, fortunately.
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Re: China: All benefits taxed from from 2022?

Postby mysharona » Wed May 08, 2019 10:54 pm

Other more recent tax changes that we've seen

For people who are working 183+ days a year in China, the Chinese government will begin to categorize us as residents. (Currently, we’re considered non-residents.)

This designation will change the way taxes are calculated. Whereas non-residents in China have fixed tax rates throughout the year, residents have a “cumulative progressive” tax rate, meaning the rate fluctuates from a lower rate at the beginning of the year to a higher rate as the year progresses.

My school is absorbing these costs now but I can see a time when they may not be able to, especially with the other changes mentioned above.
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Re: China: All benefits taxed from from 2022?

Postby expatscot » Fri May 10, 2019 12:39 am

mysharona wrote:
> Other more recent tax changes that we've seen
>
> For people who are working 183+ days a year in China, the Chinese
> government will begin to categorize us as residents. (Currently, we’re
> considered non-residents.)
>
> This designation will change the way taxes are calculated. Whereas
> non-residents in China have fixed tax rates throughout the year, residents
> have a “cumulative progressive” tax rate, meaning the rate fluctuates from
> a lower rate at the beginning of the year to a higher rate as the year
> progresses.
>
> My school is absorbing these costs now but I can see a time when they may
> not be able to, especially with the other changes mentioned above.

That's always been the case - it was the "five year rule", now six. Basically, as long as at least one summer you leave and don't return for 7 weeks (so leave the day after the term ends and return the day before the new one starts) you're still treated as being expat. The cumulative progressive tax rate means that at the start of the year you pay less (which suits most Chinese) and at the end you pay more (which is a b****r for Christmas) but overall there's little change.
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Re: China: All benefits taxed from from 2022?

Postby interteach » Fri May 10, 2019 3:52 am

Most schools in China are still working through exactly what they will do. Absorbing costs means higher tuition and/or changes in spending, and with fewer non Chinese corporate families schools are sensitive to both tuition and facilities/budgets. There are conversations taking place but nothing is firm yet.
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Comment

Postby PsyGuy » Fri May 10, 2019 8:26 am

Concur with @expatscot the five year now 6 year rule has always been around, and thats one 7+ week summer per 6 years.
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Re: China: All benefits taxed from from 2022?

Postby mysharona » Sun May 12, 2019 3:13 am

After reading the summary of the new Individual Income Tax law it appears it has a more significant impact than previous posters have identified. Essentially the law states that if you live or work in China for 183+ days your worldwide income is taxable, fewer than 183 days then only your Chinese income is taxable. As the text reads thats total days not working days, so essentially if you live in China for more than 6 months your worldwide income is open to Chinese taxes.

That potentially has tremendous implications for expats working in China.
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Reply

Postby PsyGuy » Sun May 12, 2019 7:44 am

@mysharona

It has practically zero implications for expats. What IT who makes their living teaching in China for an IS is going to disclose they have any other source of income outside of wages/salary for that IS just to give the Chinese government a cut of it.
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Re: China: All benefits taxed from from 2022?

Postby expatscot » Wed May 15, 2019 10:20 pm

@mysharona

Check you are using the most up to date version. The original proposal had this but the final one which was implemented removed it at the last minute. It was put in place to try to stop Chinese moving and keeping money out of China, but the expat exemption as part of the 6 year rule is still there.

In any case, China has a lot of dual taxation agreements with other countries, so if they did follow through on it chances are you wouldn't then be taxed in the other country (i.e. someone renting out their house in the UK currently pays UK tax on the income from it, but if it changed then they would pay tax in China but not the UK.)
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