Notice on Issues concerning Individual Income Tax on Enterprise Annuities or Occupational Annuities (“Notice”)has been issued

“Notice” has been issued on Dec. 6, 2013, which will come into force on Jan. 1, 2014. The highlights of this “Notice” on Individual Income Tax (“IIT”) on enterprise annuities or occupational annuities are as follows:

Deferred IIT treatment. According to the previous regulations, contributions for enterprise annuities shall be combined with the regular salary and calculate the IIT payable accordingly. “Notice” states that Deferred IIT treatment shall be applied according to the following circumstances.

For contributions made by companies，no IIT will arise at the time of contribution;

For contributions made by employees, the amount no more than 4% of the employee’s annuity fund contribution base can be temporarily deducted from his/her taxable income;

When gains derived from the investment of annuity funds are distributed to an individuals’ account, no IIT will be imposed on such gains at the moment.

IIT related one-off payment. When deferred IIT treatment applies, whether individual shall pay more tax in the future? “Notice” states different calculation formulas for one-off payment under different circumstances.

In case an individual withdraws the total funds from his/her individual account for the purpose of residing to live abroad, or in case the individual passes away and the designated beneficiary or the legal heir withdraws an one-off payment from the account, the recipient may allocate the one-off payment into 12 installments on a monthly basis and pay tax on each monthly installment under the category of “Salaries and Wages.”

For any other one-off withdrawal other than the above mentioned, it is not allowed to allocate the taxable income into installments. The total annuity payment shall be treated as a stand-alone monthly salary for IIT calculation purposes.