China to Allow Deferred Tax Payment for Corporate Annuities

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Dec. 16 – With the aim to promote the development of the country’s multi-tiered pension system, China’s Ministry of Finance and two other ministries jointly released the “Circular on Issues Concerning the Individual Income Tax on Corporate Annuities and Occupational Annuities (caishui [2014] No.103, hereinafter referred to as ‘Circular’)” on December 6, which allows Chinese employees to pay income tax for their annuities based on the actual amounts they receive after retirement starting from January 1, 2014. Detailed information can be found below.

For the purpose of the Circular, corporate annuities refer to a supplementary pension insurance system contributed by both enterprises and employees in addition to the compulsory basic pension insurance.

Currently, employees in China have to pay income tax on their annuities before receiving their monthly salary, while under the new policy, they are allowed to pay income tax on their annuities at retirement.

Tax Treatment for Corporate Annuities
The Circular has listed the following tax treatment for corporate annuities:

  • For the portion of corporate annuities paid by enterprises and public institutions for their employees according to measures and standards stipulated in the relevant national policies and regulations, no individual income tax is required to be paid by individuals when disbursing such portion into their personal accounts;
  • For the portion of corporate annuities paid by individuals that does not exceed 4 percent of their average monthly salary in the previous year, it shall be temporarily deducted from the taxable income of the individuals; and
  • For the portion of corporate annuities contributed by enterprises and individuals that exceed the above-stipulated contribution standards, it shall be included in the salary and income of such individuals and be subject to individual income tax.

Moreover, individuals’ investment gains on their annuities will also be exempted from income tax when disbursed to their personal accounts.

However, after individuals reach the retirement age stipulated by the State, they shall pay individual income tax on all annuities disbursed to them at the tax rate stipulated under the “Wage/Salary Income” item.

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