Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
TikTok parent ByteDance is asking Chinese staff at its Singapore headquarters to pay tax to their home country or risk losing their ability to cash out on stock options, as Beijing steps up enforcement of its global tax scheme.
Employees at ByteDance who relocated from China to Singapore received an internal memo on Tuesday requiring them to report their income to Chinese tax authorities and pay relevant taxes to cash out on stock options that make up a significant portion of their pay, according to three people with knowledge of the matter.
Those hired locally with Chinese citizenship were encouraged to report their income but not required to do so, according to the people. More than 1,000 employees could be affected, and the tax difference could be as high as 21 percentage points depending on individual salaries, as both countries have a tiered tax structure.
Singapore has emerged as a regional hub for many Chinese companies looking to expand into south-east Asia and globally. Tech giants Alibaba, Tencent and PDD, as well as start-ups such as Shein, have set up offices in the city-state, where lower tax rates have convinced many Chinese workers to relocate.
China in recent years has increased efforts to collect tax revenue to fill government coffers, including demanding wealthy individuals and companies double-check for unpaid liabilities, amid a broad economic slowdown.
In 2019, Beijing revised its income tax rules to allow authorities to collect revenue from Chinese expats, similar to US rules on Americans living abroad, but it has not enforced them rigorously. Most Chinese citizens working abroad only need to report their taxable income on a voluntary basis, and Beijing has not outlined consequences for those who do not.
For higher-paid workers at ByteDance, the potential difference could be massive. The highest marginal tax rate in mainland China is 45 per cent, while the top rate in Singapore and Hong Kong, cities with significant Chinese expat populations, is 24 per cent and 15 per cent, respectively.
Many ByteDance employees receive part of their remuneration in restricted stock units that are typically vested over a number of years and then purchased by the company. A recent share buyback in November valued ByteDance at $300bn.
A person familiar with the matter said employees required to pay tax would need to show proof of payment to fully participate in the buyback, while any amount of tax owed would be held by the company in equivalent restricted stock units.
The person added that ByteDance would provide subsidies to affected employees for up to two years but did not specify if they would be enough to bridge the gap.
ByteDance did not immediately respond to a request for comment.
Read the full article here