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, reported the South China Morning Post.
Nearly 70% 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.
The lobby group estimated the change would force a multinational company to pay an additional RMB 785,000 ($119,000) in taxes for a foreign employee with two children that received a typical allowance of RMB 960,000 for housing and school tuitions annually. The employee would have to pay extra tax of RMB 432,000 per year.
“The impact on Shanghai’s role as China’s primary business hub should not be underestimated, nor the financial impact on local communities in Shanghai, such as Jinqiao and Hongqiao, where many expatriates live and spend their earnings,” said AmCham Shanghai in a report outlining the findings.