How would tax be levied on fringe benefits?
Sometimes, the taxability of a fringe benefit will depend on the way it is structured. For example, if the company is providing the expat employee's housing free of charge for the length of his employment in China, the tax authorities will let this benefit slip through. Likewise, if the company paid the actual expenses of the employee's housing, no tax would be levied. It would be a different story, however, if the expat empoyee was given a fixed housing allowance every month and selected accommodation that cost less than the allowance. The amount of such allowance spent on items other than housing would be taxable. Tax would also be an issue if the company passed the title to the residential premises to the employee after, say 5 years of service in China. In this case, the value of this payment-in-kind would be spread over his monthly salary during the 10 years and taxed accordingly.
As long as the expenses are "reasonable", the expat employee can rest easy on holiday and his children can enjoy school without their father being pressured by an extra tax burden. A 1997 SAT notice specifically referred to a tax exemption on trips to visit relatives. Thus it may be tricky trying to squeeze a beach holiday in Bali past the PRC tax officials.
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