Australian Expats in China To Face a New Tax

 

The recent release of the proposed draft tax amendments by the Chinese government has gained criticism as it is set to have a major impact on those Australian expats in China who earn a high income. The general summary of the latest changes is set to reduce the burden on the low to middle-income groups, while the better-paid group will not benefit with the 45% tax rate and changes to the taxing of end of year bonuses and remunerations.

All individuals will benefit from the changes regardless, with the proposed monthly tax exemption lifting from 3,500Yuan to 5,000Yuan. Overall China is looking at ways of reducing excessive rates of savings and investment, to encourage a higher share of growth from household consumption. Chief economists say that raising the post-tax household income is crucial to encourage consumers to open their wallets.

China now levies tax on salary progressively in seven brackets, ranging from 3% up to 45%. The government also levies tax at a flat rate of 20% on property transactions, dividends and royalties. The proposed new tax amendment will seek to capture remunerations and royalties under the progressive tax rates rather than the previous flat rate. This will have a substantial increase in annual tax burdens for the high income earning demographic, which captures a substantial amount of Australian expats in China.

Various partners of the Big Four accounting firms, have stated that a 45% tax rate is too high and it is disincentivising the attraction of working in China for foreign employees including Australian expats. It is also making China unattractive for the skilled and globally mobile talent. In comparison to other cities such as Singapore and Hong Kong which have much lower tax rates with the upper bands capped at 22% and 17% respectively.

Frank Gu, a US-educated legal counsel at a multinational company in Shanghai, is quite agitated by the changes as he sees it having a great impact on work professionals alike. “Just stop calling it a tax-cut package,” Gu said. “To me, it is more like the state is balancing tax revenue, trimming levies on the have-nots but going more strict on the so-called ‘haves’ like me.”

If your unsure of your own tax status back in Australia, whether still a resident or whether you should be declared a non-resident it is best to seek professional advice as a review might be required.