On 6 December 2013, the MOF, the SAT and the Ministry of Human Resources and Social Security (“MOHRSS”) jointly issued the Notice on Certain Issues in Relation to IIT Treatment of Enterprise Annuities and Occupational Annuities, Cai Shui [2013] No. 103 (“Notice 103”), effective as of 1 January 2014, to provide IIT deferral treatment for enterprise annuities and occupational annuities (collectively “annuities”).

Under prior rules5, employer contributions to annuities were subject to IIT as the employee’s salary income, and employee contributions were not deductible for IIT purposes. Notice 103 now provides tax deferral treatment for contributions to annuities. Generally speaking, contributions to and income from annuities receive the following IIT treatment:

  • employer contributions within the limit to annuities are exempt from IIT;
  • employee contributions within the limit are deductible for IIT purposes;
  • investment income from the annuity funds are exempt from IIT; and
  • benefits payments received at retirement will be subject to IIT.

The cap for employer contributions per year is one twelfth of its employees’ total wages during the previous year. And the cap for employee contributions is 12% (4% * 300%) of the average wages in the local city in the previous year6.

In order to qualify for the tax deferral treatment, entities that establish an annuity plan must file relevant documents with the in-charge tax authorities by the 15th day in the month following the establishment of the annuity plan.

Currently, in China, annuity plans are uncommon in privately owned companies. We expect that Notice 103 will encourage more companies to establish annuity plans.