New tax deferral treatment for Chinese Enterprise Annuity Issued

Global Watch ()
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 a tax deferral concept in the China Individual Income Tax (IIT) regime relating to Enterprise Annuity and Occupational Pensions (collectively referred to as EA).

Circular 103 addresses IIT treatment in three different stages - (i) when the employer and employee make contributions to the EA plan; (ii) when investment income is allocated to individual accounts; and (iii) when individuals withdraw annuity from the EA plan. The Circular adopts the so called EET model of taxation under which the income is tentatively exempted in stages (i) and (ii) and is taxed in stage (iii). This effectively defers the taxing point until withdrawal and removes a major barrier to the development of EA in China.
Circular 103 was issued on December 6, 2013 and will take effect on January 1, 2014.