Will the fringe benefits received by an expatriate working in China be taking into account for his PRC individual income tax bill?
The Individual Income Tax Law of the People's Republic of China and its accompanying Implementing Regulations, which both came into effect in January 1994, only scrape the surface of the issue of fringe benefits. On the one hand, "subsidies and allowancesĄ related to the tenure of an office or employment that is derived by individuals by virtue of them having secured the tenure of that office of employment" are bundled in with taxable "income from wages and salaries". On the other hand, certain allowances and subsidies are "exempted from individual income tax by State Council regulations". These exemptions are outlined in subsequent notices issued by the State Administration of Taxation and the Ministry of Finance.
The PRC tax authorities slap tax on very few expat benefits. The hardship allowance cannot, however, escape the taxman's clutches as it is deemed to fit the description "related to the tenure of an office or employment". A job in China today is still considered a "hardship" post. Any salary boost to compensate for such hardship will be caught in the tax net.