Take-home advantage

Chinese firms wanting to poach international talent can use tax as a lure

International firms with bases in China had better watch out – their local rivals want to hire their partners.

It is true that there are more Chinese firms in the market so more jobs available, but the Chinese firms have extra ammunition: the tempting offer of tax breaks.

You see, according to one Shanghai-based partner, the gap in personal income tax rate between lawyers in foreign firms and Chinese firms is huge. A lawyer working in an international firm’s mainland China office will pay up to 45 per cent, compared with their Chinese firm counterparts who will pay 15 per cent.

In addition, some domestic firms are offering aggressive financial incentives in an attempt to lure international legal talent. One top-tier Chinese firm is understood to be guaranteeing candidates who reach the RMB2m (£200,000) billing threshold a 60 per cent cut of the fees generated.

So if a junior partner in a non-domestic firm at eight years’ PQE bills RMB5m each year and earns RMB2m in renumeration, after tax this would be cut RMB1m. Compare that with the situation in a local firm, where the same billing would earn the partner RMB2.5m.

“The preferential tax rates local Chinese firms enjoy has created massive pressure on international firms to retain senior legal talent,” said the partner. “If the tax rate gap doesn’t close, more lawyers will move to local firms from international ones.”

For lawyers, it seems, capitalist values are universal.

Yun Kriegler