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

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More than a third of foreign companies in Shanghai say they are considering relocation due to a plan to end foreign employee tax breaks. Photo: Getty Images

Published: 8:30am, 1 Apr 2021Updated: 4:09pm, 1 Apr 2021

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.

At the end of 2018, Beijing said tax breaks for expat allowances, including those available for language training, housing, and children’s education would be phased out at the beginning of 2022 after a three-year transition period.

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.