Employers Overseas Social Insurance Contributions Are Iit Taxable

Employers Overseas Social Insurance Contributions Are Iit Taxable

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According to the old Circular guoshuifa [1998] No. 101, overseas social welfare contributions made by employers are exempted from IIT, as long as they are mandatory social insurances with legal basis and such costs are not deducted from the WFOEs taxable income for corporate income tax (CIT) calculation purposes. Circular No. 101 was cancelled by SAT Public Notice No. 2 in 2011. As a result, an employers mandatory contributions made to the social welfare schemes in his home country, such as social security and medicare, should be treated as taxable income for IIT purposes. This requirement took effect from January 2011.

However, as very often happens in China, this tax rule change was not immediately implemented by most local level tax authorities. In fact, many tax officials at local tax bureaus (LTBs) are still unaware of this cancellation, and thus continue to allow expats to exempt their employers social contribution from their IIT taxable income. However, recently, albeit infrequently, we have encountered LTBs requiring the disclosure of the employers portion of social welfare contributions overseas.

From 2012, with the requirement to involve expats into Chinas social welfare system, it is likely that there will be increasing emphasis on this issue. Therefore, it may be wise to review salary information and begin adding the employers contribution to overseas social welfare into the taxable salary income for calculation of China IIT if they would like to ensure that their operations are 100 percent risk-free in terms of tax compliance.

We summarize the current legal requirements concerning expats social welfare contribution below:

- Employees contribution to overseas insurance/pension plans (whether commercial or mandatory) cannot be deducted from his/her taxable salary amount for PRC IIT calculation purposes;
- Employers contribution to the employees overseas pension/insurance program (whether commercial or mandatory) is taxable in China and has to be included in the employees monthly taxable income;
- For expats who participate in Chinas social welfare scheme, the employers contribution does not need to be included in the taxable income, and employees contribution can be deducted from his/her taxable salary amount for IIT calculation purposes.

About the Author:
This article was written for China business news site, China-briefing.com.

Dezan Shira & Associates specialise in foreign direct investment in China, and maintain accountants in Shanghai, Beijing and other major cities.



Article Originally Published On: http://www.articlesnatch.com


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