No rise in expat tax threshold

08:26, July 29, 2011      

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The income tax threshold of 4,800 yuan (US$744) enjoyed by expats in China will remain unchanged when personal tax thresholds are raised.

At present the threshold is 2,000 yuan with an extra 2,800 yuan for expats.

From September 1, China is raising the threshold to 3,500 yuan but the extra sum for expats is to be cut to 1,300 yuan, leaving them with the same 4,800 yuan benefit.

"We've received lots of inquiries from clients about the expatriate deduction," Freeman Bu, an Ernst & Young partner in Shanghai, said yesterday.

"They have argued that the cost of living is also rising for them as inflation is the same for Chinese and expatriates."

"The move is in line with China's aim to revise its tax law to let low and medium income families benefit from tax cuts," said Bu.

"Expatriates are often deemed as high-income earners."

Bu said that expats earning close to 18,000 yuan a month would pay more under the new tax system, which meant that "probably the majority of expatriates will have to pay more on tax." While for Chinese, those earning 38,600 yuan a month will pay more tax.

Joyce Xu, a Deloitte partner, said the indication was that the tax authorities wanted to make a fair playground for all taxpayers and to reduce the gap between Chinese and expats.

Industry experts said the move came as no surprise as the 4,800 yuan threshold was unchanged last time thresholds increased in 2008.

The threshold was raised from 800 yuan to 1,600 yuan in 2006, when expats' extra benefit remained at 3,200 yuan, giving them a total deduction of 4,800 yuan from the previous 4,000 yuan.

The threshold was further raised to 2,000 yuan in 2008.

But the expat extra was cut to 2,800 yuan, leaving their allowance unchanged.

China currently levies tax progressively on personal salaries in nine brackets ranging from 5 percent to 45 percent.

From September 1, the 15 percent and 40 percent brackets will disappear and there will be a new 3 percent rate.

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