China’s Ministry of Finance and the State of Taxation Administration on 4 November announced the introduction of a private pension scheme that will allow individuals in 36 “pioneering cities” to make deposits in private pension accounts. These preferential policies of deferred tax payment to individual pensions are effective as of January 1, 2022.
The announcement means that individuals living in the 36 designated pioneering cities can begin to open private pension accounts. This is expected to become a significant growth industry for China over the next few years.
The details of the policies now implemented are summarised below.
|Individual contributions to individual pension fund accounts may be deducted on an actual basis from comprehensive income or business income subject to the limit of CNY 12,000 per year.
|Investment returns accounted to individual pension fund accounts are provisionally not subject to individual income tax.
|Individual pension funds collected by individuals will not be consolidated into comprehensive income, and will be subject to individual income tax separately at the rate of 3%. The tax paid will be included in "income from wages and salaries."
|How to enjoy
|Certificates for deduction
|The individual pension information management service platform will issue deduction certificates.
|Deriving income from wages and salaries
|When an individual withholds or prepays individual income tax subject to the cumulative withholding method on income from labour remuneration, the individual may opt to deduct contributions during withholding or prepayment of tax in the current year or deduct contributions on an actual basis within the limit
|When an individual opts to withhold or prepay in the current year, the individual will promptly provide the relevant certificates to the withholding agent and the withholding agent will handle pre-tax deductions and other relevant matters for the taxpayer in accordance with requirements.
|Deriving income from other labour remuneration, author's remuneration, royalties, or income from business operations
|The individual will deduct on an actual basis within the limit at the time of final settlement in the following year.
|From 1 January 2022