China: New Taxes & Negotiating New Contracts

Adapted from ISR Member FORUM

With new tax regulations set to go into effect January 1, my school in China will begin TAXING benefits as if it were regular salary. Housing allowance, child tuition & yearly travel reimbursement could be taxed at a rate of 30% or more. That’s a solid hit on my paycheck!

Teachers were surprised to say the least. Due to China’s new tax regulations, contracts signed in March will soon have us earning less take-home than 2-3 years ago, despite raises. Our school is desperate to keep teachers, but many are moving on.

The non-taxable tuition for dependents & housing allowance was a BIG benefits package incentive. With that missing, along with continued border restrictions & the related insanity of government rhetoric, many of us feel the contracts for next year aren’t as attractive as they should be.

With this in mind, here’s a couple Questions for discussion:

1. What approach is your school taking to alleviate the new tax hits?
2. My school wants us all to stay, so what would be a good proposal to HR that would help keep us interested?
3. Have you heard of any bonuses or incentives other schools are offering in an effort to keep contracts attractive?

Comments? Please scroll down to participate in this ISR Discussion:

21 thoughts on “China: New Taxes & Negotiating New Contracts

  1. One of the problems now is that Chinese schools don’t want anyone that’s not already based in China. I look at the jobs and they all seem to say that if you’re not already in China, you need not apply.

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  2. Some schools have said they will cover these changes. The school has been talking about this for over a year, in terms of a concrete plan (it has recently changed to full coverage once they realized their retention issues, previously it was honoring contracts) so I am surprised it has come as a shock to your school.
    With the decreasing high quality teacher market in China and the challenge of getting staff from abroad it is a teacher’s market in terms of jobs. So if you are well-qualified, experienced can can interview well I would think that it would be easy enough to move to a school that will cover these costs. I would do your research and then negotiate.

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  3. Is tax on housing allowance the same as when housing is provided? I am concerned as our school is paying an inflated rent for our apartments this would then be reflected in the higher tax burden on my overall salary.

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  4. This 30% increase is not the case here in Wuhan (Hubei) Province.

    There is, for general Chinese employees, a tax on year-end bonuses that will generally raise taxes by let’s say 25%.

    Otherwise, the school is absorbing all these costs, largely by increasing tuition on students/parents by roughly the same amount to compensate for this change as well as inflation/Covid policy impacts.

    And my school is saving a lot of money because for two years very few teachers can get the full 10000 flight reimbursement since you’re pretty much limited to domestic travel/vacations. And you can’t, for example, just take 8000 RMB in cash instead.

    Chinese worker

    30,000 annual salary (2500/month)
    270,000 annual bonus
    300,000 yearly compensation

    The way it was formerly taxed, it would be 43080 (combining the two), 14.36% tax rate.

    Now, you will be paying 52,590 on that 300,000 yearly bonus (17.53% tax rate, around Spring Festival time) and then 900 on the yearly salary (3%).

    Overall, that would add up to 53,490, when previously just 43,080.
    So the increase of 10,410 would be a 24% tax increase, or essentially $1600 USD.

    Now if they start adding in airfare, apartment reimbursement, children’s free tuition/subsidy, health care, monies for extra duties, department heads or IB teaching stipends, EE advising, lumping that all in together as the “year end bonus” and they asked teachers to pay 30% of the value of the value of all that, that’s where you will see a DRAMATIC fall-off in teachers coming to China or remaining.

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    1. “And my school is saving a lot of money because for two years very few teachers can get the full 10000 flight reimbursement since you’re pretty much limited to domestic travel/vacations. And you can’t, for example, just take 8000 RMB in cash instead.”

      Actually you can, it would just be taxed. What’s happened is that your school has chosen instead to keep the cash and not allow you to take it that way.

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  5. “Teachers were surprised to say the least.” Well, you clearly haven’t been looking at the ISR forum boards, where this has been being discussed for well over two years. Our school were looking at this way back in 2018 when the proposals first emerged. Tax will be covered for this and next year, while the school finalise how to move forward.

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  6. Schools need to cover the costs if they want to keep staff with dependents. Should be able to find a way in the PRC like the receipt work around. Not so in other places. In other news, schools have been claiming the provision of tuition as a tax expense. They will still want to do this and now staff are being hit. To get around this, schools could charge staff a ‘nominal’ fee of some sort or offer a ‘generous’ discount. This is doubtful because that means they won’t be able to claim the expense. Schools, even non profit, still make profit, and so they would need to cover that tax or offer a package so that staff are no more out of pocket than before. Will they? Maybe, maybe not, not as school preferences are already going the way of hiring those with less experience and no dependents. This is now the norm in Singapore.

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  7. The change in the tax policy was announced in 2018, and there was a 3 year transitionary period that ends 31st Dec 2021. Schools across the country were aware of this, and pre-Covid, they would have just jacked up fees to cover costs. This perhaps is no longer the case for every school, but most schools I know of are covering the tax to an extent. However, others are increasing the age from which free schooling is provided to staff children and many are focusing on recruiting single teachers. Also note that if you have been receiving an extra months salary as a “bonus” or “pensio contribution” each year, this was previously taxed at 3%, but now will be added to salary and taxed progressively. However, different regions in China have different approaches to the implementation of the new personal income tax rule. If you are employed in the Greater Bay Area for example, Guangdong province is absorbing the tax cost for foreigners, and there are rumours of other special economic zones doing the same.

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  8. Firstly, this has been public knowledge for the last 2years, every WeChat forum I am in has bene discussing it. So the sentence “Teachers were surprised to say the least. ” is wholly inaccurate.

    Sensible schools with sensible HR have made provisions for this, and considering the shortage of teachers in China, most schools are covering the tax increase for the next few years.

    If your contract doesn’t look attractive because of it, you are in a position of negotiating power in China right now. Take advantage of that and move.

    Liked by 1 person

  9. My school is doing some creative finagling to offset the tax changes, especially with tuition, which is the biggest part of some packages. They’re granting “scholarships.” They’re doing adjustments to compensate the increases in taxes on housing allowances

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  10. We always had to pay our Chinese taxes on income, but not the housing and benefits. Our school informed us that they would cover the cost of the tax increases and we will see no chance in our take home pay to offset it. That’s the proposal I would take to HR. The better schools I was looking at around China actually paid teaches taxes fully as incentive, so gross pay was take home pay! Our school isn’t quite at that level yet.

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  11. Welcome to the world of most European private schools where tax has always been deducted BUT salaries were high enough to still provide considerable financial advantages and savings. Most European schools also did not provide housing allowances or even housing, nor did they offer a lot of other advantages that other foreign schools offer outside Europe. I know most of us go overseas for the tax-free paid vacation and pleasures of the adventure teaching overseas but I can understandChina’s desire to see that everyone working in china pays taxes, regardless of their country of origin. The more concerning thing is the tendency, now pronounced, to “crack down” on any form of freedom that does not align well with the dictatorial ambitions of Xi Jinping and his minions.

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  12. One can use receipts from rent paid, and write it off taxes. That is what my school did. You pay your landlord, he or she goes to the tax office, gets a receipt and gives to you. In turn, you give the the tax receipt to human resource, and it is used as a tax deduction. My housing allowance was 10k per month, and trust me, the write off was helpful. This was at least a practice ten years ago.

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  13. @donochoajapan – I think you don’t understand that the tax will be paid by the teachers and not the school. I for one will be leaving this year as my salary will be greatly reduced by the new tax rules. So much so that it really isn’t worth staying in China.

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    1. I fully understand. In my previous experiences, “taxes” were deducted from my paycheck, yet when I went to the tax office to retrieve my tax certificates needed to transfer my salary out of China, I discovered that said deducted taxes had not actually been paid to the tax authorities. Hence, “taxes cut but not paid.” When I left China, I took 315,000 RMB out in a suitcase in cash. There was no other way to get my money out of the country. Obviously it was a huge risk.

      If teachers are accountable for paying their own taxes, then it would be a welcome change, as YOU are in control of your taxes being paid or not. Also, if a job does not pay enough minus the taxes, you can simply turn down that job.

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  14. When I was in China, most employers would cut tax but not pay. If they must actually pay the taxes now, it’s a welcome change.

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