Tax Paid on behalf of Foreign Employees Requires Proofs to be Recognized

The explanation letter from the Ministry of Finance numbered 09804119811 replaced the letter numbered 09704042610 on March 12, 2010.

The tax paid by profit-seeking enterprises on behalf of the foreign employees cannot be recognized as business expense or loss if it is not part of the remuneration according to employment contract or other documents that provide sufficient proof.  It is recognized as gift that foreign employees obtain from profit-seeking enterprises according to Category 10 “Other Income” under the first item of Article 14 in Income Tax Act and should be taxed as the foreign employees’ income tax according to the regulations.

According to the change in the explanation letter above, the competent authority is adjusting the explanation letter towards fairness to prevent high salary foreign employees from avoiding tax by means of having enterprises to pay tax on their behalves.