China: Preferential individual income tax treatment for bonus payments, equity-based incentives

China: Preferential individual income tax treatment

In China, preferential individual income tax treatment is available for annual bonus payments, equity-based incentives, and certain expatriate fringe benefits-in-kind.

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This preferential tax treatment has been made available under Circular 164, which is the guidance that outlines the measures for determining individual income tax on annual bonuses, equity-based incentives, and certain expatriate fringe benefits-in-kind. These measures are effective until 31 December 2021.

Whether the preferential individual income tax policy will be extended beyond 2021 has attracted a lot of public interest, given that any changes to the policy would affect employers and employees. 

KPMG observation

Some observers anticipate that the Chinese authorities will announce policies or guidance in relation to tax treatment of certain employment remuneration items in the coming months. Prudent companies and individual taxpayers may need to consider the following well in advance in preparation for tax year 2022:

  • Monitor policy updates to determine appropriate company and personal budgeting on a timely basis
  • Perform cost analysis based on policy updates, and review and adjust the company policies to facilitate talent attraction and retention
  • Communicate with employees in a timely manner on regulatory changes, potential financial impact to ensure workforce stability;
  • Review and assess eligibility for existing financial subsidy programs (such as preferential tax policies for attracting highly skilled talents to work in the various zones including the Greater Bay Area; Shanghai Free Trade Zone Lingang New Area; and Hainan Free Trade Port)


For more information, contact a KPMG tax professional:

David Ling | +1 609 874 4381 | davidxling@kpmg.com

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