China’s expat tax reform could see more than a third of American firms leave Shanghai, AmCham says
- China is ending tax exemptions on foreign employee allowances next year, a move that has sparked concern among multinationals in Shanghai
- More than a third of foreign companies based in the commercial hub say they are considering relocation, American Chamber of Commerce (AmCham) in Shanghai survey shows
More than a third of multinational firms in Shanghai are considering moving all or part of their operation out of China or to another Chinese city when tax exemptions on allowances for foreign employees expire next year, a survey released by a US business lobby group on Thursday showed.
The change was introduced partly to equalise benefits between local and foreign workers after the government introduced tax deductible items as part of personal income tax reform.
But as the deadline has approached, many foreign companies have become increasingly worried. Nearly 70 per cent of the 102 firms surveyed by the American Chamber of Commerce (AmCham) in Shanghai in March said the new rule would make it more difficult for them to bring highly-qualified foreign talent to the city, a hub for multinationals in China.
The impact on Shanghai’s role as China’s primary business hub should not be underestimated, nor the financial impact on local communities in Shanghai, such as Jinqiao and Hongqiao, where many expatriates live and spend their earnings
The lobby group estimated the change would force a multinational company to pay an additional 785,000 yuan (US$119,000) in taxes for a foreign employee with two children that received a typical allowance of 960,000 yuan for housing and school tuitions annually. The employee would have to pay extra tax of 432,000 yuan per year.
