People’s Republic of China – Health Insurance Tax Relief Pilot Program

People’s Republic of China – Health Insurance Tax

The government of the People’s Republic of China (“PRC”) has issued a new circular that introduces favorable tax treatment on premiums paid for qualified commercial health insurance products. Taxpayers in the pilot cities who earn income from certain specified sources will be eligible to claim a tax deduction against certain assessable income. The new policy is to be rolled out in pilot cities throughout the PRC. The circular came into effect on May 8, 2015.

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The government of the People’s Republic of China (“PRC”) has issued Cai Shui [2015] (“Circular 56”), introducing favorable tax treatment on premiums paid for qualified commercial health insurance products.1  The new policy is to be rolled out in pilot cities throughout the PRC. 

Circular 56 came into effect on 8 May 2015. 

WHY THIS MATTERS

To date, the types of allowable deductions for wage earners in the PRC have been limited.  The release of Circular 56 could provide some leeway for tax-effective remuneration planning by employers and some tax-advantageous planning by employees.

Background

Jointly issued by the Ministry of Finance (“MOF”), State Administration of Taxation (“SAT”), and China Insurance Regulatory Commission (“CIRC”), Circular 56 follows on the release of Notice on Issues Pertaining to the Collection and Administration of Individual Income Tax on Enterprise Annuities and Occupational Pensions (Cai Shui [2013] No. 103), which allows tax deductions for voluntary employee contributions to approved Enterprise Annuities and Occupational Pensions.

Main Features

Circular 56 indicates that a major city of each PRC province will be nominated for the implementation of the pilot program.  All the areas of Beijing, Shanghai, Tianjin, and Chongqing, municipalities directly under the central government, are included in the program.

In respect of the amount of premium they pay for qualified commercial health insurance products, taxpayers in the pilot cities who earn income from the following sources will be eligible to claim a tax deduction against certain assessable income:

  • wages and salaries;
  • remuneration for providing services;
  • production or business operations conducted by self-employed industrial and commercial households;
  • contracted or leased operations of enterprises or social service providers partly or wholly funded by state assets.

An annual cap of RMB 2,400 (or RMB 200 per month) has been set as the allowable tax deduction in respect of the relevant premiums paid.  The qualified commercial health insurance products in question include the comprehensive health insurance products that are developed by the CIRC to cater for the needs of the general public, and approved and released jointly by the MOF, SAT, and CIRC.

KPMG NOTE

The issuance of Circular 56 echoes the spirit of Several Opinions of the State Council on Expediting the Development of Healthcare Industry (Guo Fa [2013] No. 40), by providing tax breaks for qualified commercial health insurance products.  This is not only consistent with the message delivered by Premier Li Keqiang at the executive meeting of the State Council held on 6 May 2015, about leveraging international experience and encouraging the general public to purchase comprehensive health insurance products; it also demonstrates the resolve of the SAT to reform the individual income tax regime.  

It is also mentioned in Circular 56 that various authorities will work together to develop the work plans for implementing the pilot program in the coming months and will submit them to the MOF, SAT, and CIRC for filing and approval. 

KPMG will monitor the details of the plans and will endeavor to keep Flash Alert readers informed as matters develop further.

FOOTNOTE

1  Notice on Individual Income Tax Treatment on Commercial Health Insurance, Cai Shui [2015] No.56, issued on 8 May 2015. 

RELATED RESOURCE

This article is excerpted with permission from “Pilot Program on Promoting Commercial Health Insurance Products Coupled with Individual Income Tax Break,” in China Tax Alert (Issue 11 – May 2015), a publication of the KPMG International member firm in the People’s Republic of China.  For the English-language version, click here.  For the Chinese-language version, click here.

CONTACTS

For additional information or assistance, please contact your local GMS or People Services professional or one of the following professionals with the KPMG International member firm in the People’s Republic of China:

In Shanghai  

Michelle Zhou

tel. +86 21 2212 3458

michelle.b.zhou@kpmg.com   

 

Jason Jiang

tel. +86 (21) 2212 2888 ext 3527

jason.jt.jiang@kpmg.com    

The information contained in this newsletter was submitted by the KPMG International member firm in the People’s Republic of China. 

© 2016 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and KPMG Huazhen, a Sino-foreign joint venture in China, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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