Local incentive programs to attract talents to Chinese financial services sector
Financial services sector in China has been growing rapidly and significantly. Local authorities in Beijing, Shanghai and Shenzhen have introduced measures to attract financial institutions setting up in their respective localities. Talents working for financial institutions will also benefit from these measures.
Pudong new area
On 24 July 2008, Pudong new area authorities (Shanghai) have promulgated a new incentive program for companies/employees in the financial services sector. Financial services sector would basically include security houses, banks, and insurance companies. Qualified individuals include senior executives, individuals with managerial roles, and professionals with three years or more experience working for the financial institutions, which are registered in the Pudong New Area and approved by the China Securities Regulatory Commission, China Banking Regulatory Commission or China Insurance Regulatory Commission.
The incentives applicable to the qualified employees of the qualified financial institutions under the program are mainly taking the form of:
- Senior executives of newly set up financial institutions can apply for a housing subsidy of up to RMB200,000.
- Senior executives can apply for refund of up to 40% of his Individual Income Tax ("IIT") paid in a year.
- Managers and professionals can apply for refund of up to 20% of his IIT paid in a year.
The incentive program will expire on 31 December 2010.
Shenzhen special economic zone
Earlier this year, Shenzhen special economic zone also announced its intention to attract talents in the financial services sector but detailed measures have not yet been promulgated.
Beijing
Actually, Beijing Municipality was the "pioneer" of using incentive programs to attract talents to financial services sector. Three years ago, various authorities in Beijing announced different levels of incentives to facilitate the development of the financial services sector in the Capital of China. Definitions of qualified financial institutions and qualified employees are similar to those applicable in Pudong New Area stated above. Given the timing of the announcement of the incentive programs, it seems Pudong new area is following the footprint of Beijing Municipality.
Some of the major incentives relevant to the qualified employees that can be applied for are as follows:
- IIT exempt award to be granted to those with great contribution made to the financial services sector.
- Preferential IIT treatment for stock awards to be taxed over a 5-year period in calculating its IIT liabilities.
- IIT refund of up to the lesser of RMB300,000 or 80% of the IIT payment retained by the Beijing Municipality on the purchase of one real estate property or one automobile, or training expenses on professional study.
- Deduction of up to 20% of employee and employer housing fund contributions (applicable to local employees in China) in calculating IIT liabilities.
Companies and/or individuals should refer to the specific notice for details of the application procedures and requirement issued by the relevant authorities.
PwC observation
The incentive programs introduced by different local authorities may possibly aid the development of financial services sector in China. To a certain extent, it is a reflection of the competition among China's first-tiered cities to attract banking, securities and insurance companies to set up in their respective localities. Nevertheless, these companies and their employees may benefit from the incentives granted.
The following questions may be of particular interest of the companies' personnel departments, when IIT is refunded out of the incentive programs:
- Is the cash refund received out of the incentive program tax free to the employee?
- How should an individual handle the foreign tax credit claim in his/her home country tax filing?
- What is the actual compensation / assignment costs to the employer?
There is no specific consideration in the incentive programs addressing all of these questions. However, it is worthwhile to review the questions or issues at an early stage, maybe also partner with the business units, when leveraging the incentive programs as a means of attracting and retaining talents in the financial services sector.
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