Summary
\nChina\u2019s State Administration of Taxation, the Ministry of Finance, and the Ministry of Human
\nResources and Social Security (MHRSS) jointly issued guidance on 6 December 2013 (Circular Cai
\nShui [2013] No. 103), that provides for the deferral of individual income tax (IIT) on an
\n\u201centerprise annuity.\u201d Circular 103 applies from 1 January 2014.<\/p>\n
Enterprise annuity is a supplementary pension plan that Chinese companies may establish according
\nto a decree issued in 2004 (Decree No. 20 of the Ministry of Labor and Social Security (the predecessor of MHRSS)). Under
\n a typical enterprise annuity, both the employer and employee make monthly contributions to the
\nannuity fund, although the annual employer contribution may not exceed 1\/12 of its total salary
\nexpenses of the preceding calendar year. Before Circular 103, both the employer and employee
\ncontributions were taxable at the time the contribution was made. Circular 103 shifts the taxation
\npoint to the time the funds are withdrawn from the annuity fund.<\/p>\n
Key implications
\n1. An employer\u2019s contribution is exempt from IIT in the hands of the employee provided the
\ncontribution is made within the limits set by the relevant regulations.
\n2. An employee\u2019s contribution of no more than 4% of his\/her salary tax base is deductible from
\nthe employee\u2019s salary for IIT purposes. The salary tax base is the employee\u2019s average monthly
\nsalary of the preceding calendar year, but is capped at three times the local average monthly
\nsalary of the preceding calendar year.
\n3. The allocation of the fund earnings to the employee\u2019s individual account is exempt from IIT.
\n4. After an employee reaches the statutory retirement age, the monthly withdrawal of the annuity
\nfund from his\/her individual account will be subject to IIT as wages and salary, at tax rates
\nranging from 3% to 45%. If the withdrawal is made on a quarterly or an annual basis, it will be
\nspread evenly over the relevant period and taxed monthly.
\n5. A lump-sum withdrawal due to the employee\u2019s immigration abroad or death will be spread evenly
\nover 12 months
\nand taxed monthly. However, a lump-sum withdrawal for any other reason will be treated as a
\nseparate monthly salary \u2013 no spread will be allowed.
\n6. The employer must register with competent tax authorities within the first 15 days of the
\nmonth following the month an annuity plan is set up and the following documents must be submitted to the authorities:
\nthe annuity plan, the letter of filing, the confirmation letter issued by the MHRSS (or its local
\nbranches), and any other documents required by the tax bureau. If a change is made to an annuity
\nplan, the trustee, the custodian, etc., relevant documents must be submitted to the competent tax
\nauthorities within the first 15 days of the month
\nfollowing the month in which the change is made.<\/p>\n
The tax deferral policy on enterprise annuity aims to stimulate the development of the supplementary pension system. The
\ntax exemption at the time of contribution and the earnings allocation provided in Circular 103 have some similarities with
\nthe \u201c401k plan\u201d in the United States
\nThe new tax policy on annuity will offer employers scope for compensation structuring that will benefit both employers and
\nemployees:
\n\uf0b7 Enterprises that already have instituted an annuity plan should consider reviewing the plan to provide a more tax efficient
\ncompensation package to employees;
\n\uf0b7 Enterprises that currently do not have an annuity plan may find that Circular 103 will offer a compensation
\nstructuring opportunity for their employees; and
\n\uf0b7 Multinational corporations that would like to set up enterprise annuity plan to benefit its local and expatriate
\nemployees should note that:
\no Only employers that have participated in government statutory pension insurance for their employees are
\npermitted to set up enterprise annuity plans; and
\no For any foreign nationals (foreign assignees or local hires) that would like to participate in an annuity plan,
\nit is essential to confirm that they are able to withdraw the amount on their personal account when they
\npermanently leave China. Since local practices may vary from location to location in China, companies
\nshould consult with their advisers.<\/p>\n
Courtesy of Deloitte Touche<\/p>\n","protected":false},"excerpt":{"rendered":"
Summary China\u2019s State Administration of Taxation, the Ministry of Finance, and the Ministry of Human Resources and Social Security (MHRSS) jointly issued guidance on 6 December 2013 (Circular Cai Shui [2013] No. 103), that provides for the deferral of individual income tax (IIT) on an \u201centerprise annuity.\u201d Circular 103 applies from 1 January 2014. Enterprise […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"_links":{"self":[{"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/posts\/857"}],"collection":[{"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=857"}],"version-history":[{"count":3,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/posts\/857\/revisions"}],"predecessor-version":[{"id":1632,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=\/wp\/v2\/posts\/857\/revisions\/1632"}],"wp:attachment":[{"href":"https:\/\/cmcdllc.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=857"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=857"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cmcdllc.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=857"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}