How is the taxation liability for an expatriate employee calculated?
Depending on whether the foreign establishment is bearing all or only a part of the expatriate employee's personal tax bill, different calculation formulae apply. Notices 89 and 199 issued by the State Administration of Taxation in 1994 and 1996 respectively set out the various formulae for "grossing up" income and calculating the extra amount of tax due. The basic formula provided in Notice 89 applies to individual income tax which is fully borne by an employer. It takes into account the monthly income; the allowable monthly deduction, which under current rules, usually amounts to RMB4,000 for foreign employees; and a quick calculation deduction which is specified together with the applicable tax rate on a progressive scale in a table attached to Notice 89.
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