Are you ready for 2022? LEGAL AND TAX UPDATE WITH GARRIGUES

Are you ready for 2022?

LEGAL AND TAX UPDATE

WITH GARRIGUES

Preparing for an important tax impact for expats in China

We haven’t lost hope that next year’s policies will provide some relaxation or incentives for expatriates working in China to help with recovery from the seemingly never-ending resurgence of the pandemic .

Business Tianjin invited the law firm of Garrigues (https://www.garrigues.com/en_GB) to a seminar to provide an end-of-the-year update on the actual policies in China. Two of its foreign lawyers (Diego D´Alma, a tax partner specializing in tax practice at the international Garrigues offices in China, and Eduardo Bernal, Senior Associate of the corporate department of Garrigues) delivered an insightful perspective on the updated regulations that companies and individuals will face in the new year. Garrigues has two main offices in China, in Beijing and Shanghai, with a wide scope of activity in other regions and long experience in the market.

These experts provided some positive news, suggestions and inputs with regard to the economic impact that the new regulations will have on many of the expats working in China, but it is clear that the actual scenario will be that most of the corporations in China employing expats in their workforce will face a significant increase in costs.

Many analysts have predicted that China’s economic growth will be the biggest challenge for the government in 2022, and also for middle and large corporations. China’s policymakers could rally more supportive policies to address economic deterioration and rising external challenges, including the tax impact on expatriates working in China.


The country is facing strong headwinds which include the new Omicron virus variant, as well as financial risks resulting from the Evergrande debt crisis and trade relations with the US.

China’s 2021 year-end legal and tax update was the main topic of the seminar, which covered the following content:

1. New legal framework for foreign-invested enterprises2. New tax measures boosting foreign investment3. New data protection regulation4. New individual income tax

All these policy changes, and many others that will occur over the coming years on the basis of the Chinese government’s plans, are aimed at redistributing wealth to both expand the middle class and increase the income of the poor, as well as curtailing the excessive income of the super-rich.


The main topic of the agenda was the new IIT (Individual Income Tax) Law, in which the  principles updates will be:

- New criteria to determine tax residence and period of stay in China
- New deductions
- Comprehensive income consisting of employment income, income from personal services, author’s remuneration and royalties
- New rates for employment income

- Transitional period until December 31, 2021, for the dual system deductions / exemption for benefits in kind

- Transitional period until December 31, 2021, for the special tax regime applicable to one-off bonuses
- New anti-avoidance rules
- New record-filing requirements
- New requirements and deadlines for annual IIT filings
- Concurrent responsibility of the mother company for filing purposes if its subsidiary (Chinese company) did not file the corresponding withholding tax
- Calculation formulas for the tax credit from double taxation
One of the most important issues discussed during the seminar was the new deductions scenario:

- The IIT exempted allowances are invalid as from January 1, 2022.
- New deductions are only applicable to Chinese tax residents.
Finally the recommendations and considerations provided by Garrigues tax partner, Diego D’Alma, regarding the impact of the new regulations relative to Individual Income Tax Law in company accounts were as follow:
1. Calculate the increased tax cost of employees and negotiate salary adjustments to cover increased tax cost
2. Under the dual employment arrangement, the overseas-sourced income (e.g. salary income dividend, income or share incentives) for work performed overseas assumed by overseas employer is not taxable for non-Chinese tax resident and tax-exempt for Chinese tax residents of no more than six consecutive years
3. Being taxed as a non-Chinese tax resident, if the circumstances qualify as such, allows the IIT preferential policies for bonus and overseas sourced income".
4. Consequences of taxation of benefits in kind: 

- Convert all benefits in kind into cash salary to avoid disputes with tax authorities over valuation of benefits and avoid indirect taxes for benefits offered directly by employing company.
- Exercise control if withholding taxes in China surpass the local salary in the split payroll scenarios.
5. Keep track of updated tax regulations and local tax practice

Freed from the pressures of achieving lofty economic growth targets, local government will instead be incentivised to achieve what might be called ‘quality’ growth. But those who see this as an end to the story of Chinese expansion at all costs should remember that a growing middle class brings with it higher consumption. Combined with higher-value manufacturing, China will still grow much as it has done previously. However, there will be a shift from the debt-driven property and infrastructure investment of the past few decades.


China will remain stable in 2022, as the region's strong financial buffers offset rising growth pressures associated with pandemic-related uncertainty and China's property-sector stress. The growth of China will slow to 4.8% in 2022, from 8.0% in 2021 due to further declines in property sales and construction, sporadic mobility disruptions tied to the pursuit of "zero-COVID", and a less favourable base effect.


A raft of pressing issues will be discussed at the central economic work conference in mid-December, including stabilising the economy and markets through cross-cyclical adjustments; balancing the pandemic control and economic growth; managing the risks caused by the domestic slowdown and external spill-over, and maintaining exports by improving external relations.


We wish you a prosperous ending to the year, and we hope you can deal in a timely fashion with all pending issues and adjustments, allowing you to face next year with a renewed spirit.

We thanks to GARRIGUES to provide this seminar.

您是否做好了应对新变化的准备
最新税法早餐研讨会
现行外籍个人在中国取得有关补贴免征个人所得税的“税收优惠”政策将于2021年12月31日到期。目前看来，该政策到期后可能不再延续或继续修订更新，这意味着将对目前受益于该优惠政策的外籍个人产生显著的财务影响。
本期《津卫商务》邀请了西班牙嘉理盖思律师事务所在天津康莱德酒店举办了早餐研讨会，会上合伙人代迪安先生以及高级法律顾问艾德华先生对《中国外商投资法》，《数据安全法》、《个人信息保护法》，外籍个人税收优惠政策等热点问题进行了深入探讨。西班牙嘉理盖思律师事务所在中国设有北京和上海两个办事处。为在华投资领域提供全方位一站式解决方案。

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