Understanding China’s Extended Preferential Tax Exemption Policy for Foreign Individuals

In a welcome move for multinational companies and expatriates alike, China has officially extended the preferential individual income tax (IIT) policy for foreign nationals through December 31, 2027. This policy allows eligible foreign individuals to receive specific allowances free from individual income tax, provided certain conditions are met. For businesses employing foreign talent in China, this extension presents both an opportunity and an obligation to ensure full compliance while maximizing the benefits.

What Is Covered Under the China Tax Exemption?

The following allowances may qualify for IIT exemption when granted to foreign individuals working in China:

• Meal subsidies

• Laundry expenses

• Housing allowance

• Relocation income

• Language training fees

• Children’s education fees

• Home visit expenses

These benefits are often critical in attracting and retaining international talent, helping to offset the high cost of living in certain Chinese cities and support the smooth relocation of foreign professionals and their families.

No Fixed Monetary Thresholds, But Clear Policies Are Essential

While the tax authority permits these exemptions, it’s important to note that there are no specific caps or monetary limits stipulated in the current regulations. This places the responsibility on companies to establish their own internal tax-exempt benefits policies. These should:

• Clearly define eligible allowance categories and maximum reimbursable amounts

• Specify documentation and proof requirements for each type of expense

• Outline the approval and verification procedures for HR, finance, and tax teams

A well-documented and consistently applied policy not only ensures eligibility but also reduces the risk of challenges during tax inspections or audits.

Filing Requirements and Compliance Best Practices

To remain compliant, companies must go beyond internal policy development. They are also required to:

• File the relevant documentation with the local tax bureau in accordance with applicable deadlines

• Maintain robust interdepartmental coordination between HR, finance, and legal teams

• Stay up to date on any changes in the interpretation or enforcement of these rules at both national and local tax bureau levels

Failure to properly implement or document exempt allowances can result in retroactive taxation, penalties, and reputational risk for both the employer and the employee.

How Woodburn Can Help

Navigating the complexities of China Tax Exemption, especially those affecting international talent, requires expert support. At Woodburn Accountants & Advisors, our tax professionals bring deep experience in cross-border compliance, policy design, and regulatory filings.

---

Woodburn Accountants & Advisors is one of China and Hong Kong’s most trusted business setup advisory firms.

Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

Contact us