China’s New Regime for Taxing Expatriate Income: Tightening the Screws or Vintage Wine in a New Bottle?
2021
Expatriates have been fundamental to China’s economic growth, contributing to the
country’s socioeconomic development and modernization. The second-largest group
of expatriates in China are North Americans. Personal income taxation concessions
for expatriate workers have been an important instrument to attract and retain skilled
foreign labour since China opened its doors to foreign investment and an income
tax was adopted four decades ago. A recent overhaul of the law on individual income tax
introduced a number of changes to expatriate income taxation, including the winding
back of some preferential concessions previously offered only to expatriates. A literal
reading of these changes suggests that the new regime has led to harsher tax treatment
of expatriates and increased their tax liability. This article considers whether this view
holds up, by closely analyzing the new system’s major features relating to individual
income tax as they affect expatriates. The authors challenge the literal reading of the
law and argue that the recent changes have not fundamentally altered the underlying
policy on expatriate income taxation. Further, an economically stronger China has not
observed any diminishment of the role of personal income taxation as an instrument of
government policy, despite the recent changes. A generous interpretation of the legal
terms and rules, and of the application of concessions under the amended system, may
encourage more lenient treatment of Canadians and other expatriates working and living
in China.
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