Managing expatriate´s payroll effectively whilst being cost-efficient is not an easy task. The process may seem tedious, starting from the payroll set up, to the preparation of individual pay slips, moving through to the payroll reporting, assessing and finally reviewing. But that can be easily managed with the help of our expertise.
Throughout the expatriate payroll process, the generally most emphasized step would be the determination of payment and the net salary arrangement, where a possible conflict of interest between being cost-effective for the firm and beneficial for the expatriate may arise. In this article, we will introduce two aspects that may potentially help create solutions to being cost-efficient when determining the expatriate remuneration package, yet maximizing employee benefits. These aspects are:
- Project Management
For those planning short-term assignments in China, it is advised to plan clearly in advance as it can impact the net income of the expatriate. An overrun stay may result in the payment for income borne by the overseas entity as well as the expected tax for income borne by the Chinese entity. Simple scheduling includes: for example, when aiming for a 90/183 day stay, the project should be planned clearly within these time frames. It is advised that all accommodation and logistics are arranged in advance to optimize the time given.
However, for longer projects, time frames involved would be on the annual scale. It would be beneficial for projects to avoid starting just before the new tax year or finishing just after a tax year has ended. These circumstances may result in extra administrative work and thus outweigh the benefits of the possible tax returns. Therefore, simple project management could save administrative and potentially financial efforts.
Chinese regulations allow the use of benefits-in-kind to potentially increase the net remuneration value for the expatriate by deducting the value of these benefits from the taxable income. Of course, such benefits-in-kind also come with a tedious list of conditions that must be complied with in order to be accepted as a tax deduction. However the outcome of this can change the taxable income and ultimately the rate of tax.
Benefits may include home flights, laundry services and other fees such as language courses. However, the most common benefit is the takeover of accommodation costs. Accommodation costs can either be paid by the company, or by the employee. But nevertheless they can be claimed through the submission of an official tax receipt and thus be deducted from the total salary. This not only results in a deduction of taxable income, but may also potentially lead to a degrading to a lower tax rate group. This ensues to a larger net value for the expatriate and avoids additional expenses for the company. As shown in the graph below, the disparity in tax rates between different groups can be quite substantial.
When calculating an tax amount, at first a tax exempt amount of 3500 RMB as well as the employee’s part of the social insurance has to be deducted from the pre-tax amount. Afterwards the monthly taxable income can be applied to this table. Since the taxable income is subject to different tax rate levels you can calculate the final tax amount by easily deducting the quick deduction amount from the tax amount ensued from your tax rate level.
Nevertheless, it is important to keep in mind that all benefits-in-kind must be in non-cash or on a reimbursement basis for fulfilling Chinese regulations and thus potentially being realized.
Payroll management involves a lot more than just the determination of a remuneration package as for example tasks such as the assessment of social benefit contribution or filing for individual PRC income tax returns. If you would like to learn more about payroll management or have any inquiries on the process, please do not hesitate to contact us via the following email address: firstname.lastname@example.org
Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: email@example.com
|Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up for our Newsletter, give us a call +86 (10) 6561 6609 or contact us directly via firstname.lastname@example.org|