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Several preferential individual income tax (IIT) policies impacting foreign employees in China are scheduled to expire on December 31, 2027. While these policies were extended in 2023, the clock is now ticking for organizations relying on these tax benefits to plan ahead.
One key policy allows certain fringe benefits for foreign employees—such as housing, education, and language training—to remain exempt from IIT. This exemption, which had been set to end in 2023, was extended by four years to provide continued relief for employers managing mobile talent in China.
Also included in the extension were other preferential IIT measures, such as the tax treatment of annual one-time bonuses and the Greater Bay Area IIT subsidy. All are currently in effect through the end of 2027, offering a temporary window of continued savings for both foreign and Chinese resident taxpayers.
The extension has brought immediate relief to some higher-earning foreign workers. Some of them, especially those who bear the high cost of educating their children, would have seen a sharp increase in their personal tax burden.
What are the tax-exempt benefits for foreigners working in China?
Foreign individuals working in China can enjoy tax-exempt benefits in the following eight categories:
- Business travel expense
- Education expenses for children
- Home leave expense
- Housing rental expense
- Language training expense
- Laundry fee
- Meal fee
- Relocation expense
These benefits—technically known as benefits-in-kinds (BIKs)—are additional perks provided on a reimbursement and non-cash basis, separate from salary and wages.
To qualify for the IIT exemption, the expenses must be reasonable in amount and supported by appropriate documentation, such as official invoices (fapiao).
For example, local tax bureaus may require rental agreements and valid invoices when reviewing housing rental claims as part of the IIT filing process.
Each benefit category may also have its own specific requirements. For example, home leave expenses may only be exempt if they cover travel for the expatriate between China and their or their spouse’s Home country, and are limited to up to two trips per year.
What is China’s current income tax policy?
Through December 31, 2027, non-China domiciled tax residents (those without a domicile in China who reside in the country for 183 days or more in a tax year) can choose between two tax benefit options:
- The tax-exempt BIKs; or
- The seven special additional deductions:
- Children’s education expenses
- Continuing education expenses
- Expenses for taking care of the elderly
- Healthcare costs for serious illness
- Housing mortgage interest
- Housing rent
- Nursing expenses for Children under 3 years old
The preferential BIK policy will be effective through the end of 2027. The seven additional deductions remain available for both foreign and Chinese tax residents.
These two benefit options are mutually exclusive and cannot be combined within the same tax year. Once selected, the choice cannot be changed until the following tax year.
Expatriates’ tax-exempt fringe benefits can be fully deducted based on the actual cost of each expenditure, provided the amounts are considered “reasonable” and are supported by corresponding invoices or proof of payment. The definition of “reasonable amount” typically considers local living standards, consumption levels, and market prices. In practice, a proportion below around 30 to 35 percent of the expat’s monthly salary is regarded as “reasonable” by Chinese tax authorities.
By contrast, most special additional deductions (except for healthcare costs, which are based on actual expenses with a cap of RMB 80,000 per year) are calculated using fixed standard amounts.
For many expatriates—particularly those with higher incomes and related expenses—the tax-exempt fringe benefit approach often provides greater tax savings than the standard special deductions.
Who will benefit from China’s extended tax policy on foreigners’ IIT fringe benefits?
All foreign individuals working in China, as well as companies trying to attract and retain international talent, will benefit from the extended preferential tax policy.
The extension is especially favorable for expatriates with high education costs for their children, and for international schools operating in China.
In major cities like Beijing and Shanghai, annual tuition for one child at an international school can range between RMB 200,000 to RMB 350,000. In comparison, the standard special additional deduction for children’s education is only RMB 1,000 per month per child—far below the actual expenses many foreign families incur.
With the continued availability of tax-exempt fringe benefits, foreign employees can significantly reduce their tax liability on these high-cost items. This also brings indirect benefits to the international education sector by helping maintain demand.
Making new HR and payroll policy adjustments
Companies with foreign employees who are already receiving, or are eligible to receive, tax-exempt BIKs may need to revisit and adjust their compensation structures to ensure alignment with the extended policy.
For companies that are not qualified to offer BIKs —such as those with poor tax compliance records that have been denied this option—an alternative is to assist eligible foreign employees in claiming the seven special additional deductions available to all tax residents in China.
Companies that previously made structural changes in anticipation of the policy’s expiration—such as modifying labor contracts, restructuring salary packages, or reallocating staff—may now need to pause or reverse those adjustments and retain the original plans for possible future needs.
Published 10 JUNE 2025
Author: Dezan Shira & Associates
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