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By International Assignment Services

Dec 2013, Issue 31

New tax deferral treatment for Chinese Enterprise Annuity

The Ministry of Finance, the Ministry of Human Resources and Social Security (MOHRSS) and the State Administration of Taxation (SAT) jointly issued Caishui [2013] No.103 (Circular 103) which for the first time introduces the tax deferral concept in the China Individual Income Tax (IIT) regime relating to Enterprise Annuity and Occupational Pension (collectively referred to as EA).

Circular 103 addresses the IIT treatments in three different stages - (i) when the employer and employee make contributions to the EA plan; (ii) when the investment income is allocated to the individual account; and (iii) when the individual withdraws annuity from the EA plan. The Circular adopts the so called EET model of taxation under which the income is tentatively exempted (E) in stages (i) and (ii) and is taxed (T) in stage (iii). This effectively defers the taxing point until the withdrawals and removes a major barrier to the development of EA in China.

Circular 103, issued on 6 December 2013, takes effect on 1 January 2014.

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