What is the change? A new tax law in China has had consequences on taxable income requirements for foreign nationals, especially for employers who use the “undertaking” approach when applying for Category A work permits.

What does the change mean? Employers using this approach should be sure to conduct an individual income tax (IIT) pre-analysis to ensure they are meeting taxable income requirements when hiring foreign nationals on Category A work permits.

  • Implementation time frame: Ongoing.
  • Visas/permits affected: Category A Work Permits, including renewals and deregistration.
  • Who is affected: Employers who use the “undertaking” approach when applying for Category A work permits.
  • Business impact: The changes may add to the time it takes for employers to calculate the appropriate salary for foreign workers on Class A Work Permits.

Background: The “undertaking” approach allows for faster work permit processing if employers make commitments ahead of time to meet minimum pay and other work permit requirements. Among these requirements is that employees receive a minimum level of taxable income, as established by the local Foreign Experts Bureau (FEB).

The new IIT law has changed how taxable income is calculated in a number of ways. For example:

  • Taxable income may be lower than expected because of additional itemized deductions and preferential taxation of bonuses and equity income under the new law.
  • The implications of the new tax law may differ depending on whether the foreign national is considered a resident of China. Residents are eligible to apply for refunds at the end of the tax year, thereby changing how taxable income is calculated.
  • Foreign employees who simultaneously have positions both in and out of China may not be fully taxed on their income.

There may be other ways in which taxable income calculations may change under the new tax law. Applicants that fail to meet taxable income requirements could face immigration consequences, including having work permits downgraded. Failing to meet the requirements may also adversely affect a company’s credit rating, which could result in denials of future work permit applications in Category A.

Analysis & Comments: Employers who are considering the undertaking approach are encouraged to work with Deloitte to conduct a pre-analysis to ensure they are meeting taxable income requirements. Failure to meet taxable income requirements can lead to significant immigration consequences. Employers should note that local FEBs may adjust taxable income minimums in response to the tax reform, but it is difficult to predict when this would happen and time lines would likely vary depending on location.

Source: Deloitte. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities. DTTL (also referred to as “Deloitte Global”) and each of its member firms are legally separate and independent entities. DTTL does not provide services to clients. Please see to learn more. Deloitte Legal means the legal practices of Deloitte Touche Tohmatsu Limited member firms or their affiliates that provide legal services. For legal, regulatory and other reasons, not all member firms provide legal services. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms or their related entities (collectively, the “Deloitte network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. © 2019. For information, contact Deloitte Touche Tohmatsu Limited.