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Personal tax relief to help companies hang on to executive talent
Published on: 2017-07-03
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042The top rate of personal tax in China is 45%, compared with 17% in Hong Kong and 20% in Singapore.


China is expected to roll out new personal tax relief policies for top executives, in an effort to help its biggest and most successful firms, and start-ups, hold onto their best talent.


Business consultancies now expect top corporate officials to be offered tax relief on more non-cash types of remuneration, which are becoming increasingly popular within executive pay packages, as Beijing steps up its effort to gain an edge in keeping its most-promising executives from leaving the country to work overseas.


As in many countries, China's biggest earners also face the highest tax burden - but the levels of personal tax levied in the mainland have now overtaken many rival markets. The top rate of personal tax in China is 45%, compared with 17% in Hong Kong and 20% in Singapore.

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Last year, the government cut taxes on equity-based incentive plans, such as stock options, at non-listed companies. They are now taxed only when or if they cash in those holdings, whereas previously they were taxed yearly as earnable income.


In addition qualified executives can apply a flat tax rate of 20% on gains from equity incentives because the income they earn is classified as capital gains, not salary.

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The mainland adopts a seven-bracket progressive personal income tax regime, and the expected new tax breaks are expected to ease the burden on the top 45% earners, who could conceivably be tempted elsewhere to tax rates regimes.


"The latest moves in tinkering with China's individual tax regime are seen as a strong leap forward to hold onto the best talent," said Ma Fei, managing director, greater China executive compensation solution, at consultancy Willis Towers Watson.


A recent Deloitte report showed that executive equity incentive levels at A-share companies have now risen seven years in a row, with an annual compound growth of 42%.


Some 723 firms listed in Shanghai and Shenzhen had implemented equity incentive schemes by the end of May, 2016, a quarter of the total, according to separate data from Willis Towers Watson.

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