People’s Republic of China – Tax Deductions for Private Health Insurance Expanded

People’s Republic of China – Tax Deductions for Private

This report explains that individuals in China nation-wide can soon claim as IIT deductions premiums paid for qualified commercial health insurance products.

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A recently-issued Notice in the People’s Republic of China provides for the nation-wide extension of preferential individual income tax (IIT) treatment for premiums paid for qualified commercial health insurance products as from 1 July 2017.

WHY THIS MATTERS

With the rolling out on a nation-wide basis of this policy, more taxpayers will benefit from the tax relief that comes with being allowed to claim up to CNY 2,400 per annum as IIT deductions in respect of premiums paid for qualified commercial health insurance products.

Companies should familiarize themselves with the new rules in the event that they act as IIT withholding agents.  Companies that are IIT withholding agents are obliged to establish mechanisms to administer the tax deduction claim for allowable premiums. 

Notice No. 39 and Main Features of Preferential Tax Treatment for Commercial Health Insurance Premiums

On 2 May 2017, The Ministry of Finance (MoF), the State Administration of Taxation (SAT), and the China Insurance Regulatory Commission (CIRC) in the People’s Republic of China jointly issued Cai Shui [2017] No. 39 (Notice No. 39).1  Notice No. 39 builds on the pilot program which allows for preferential tax treatment of qualified commercial health insurance products in pilot cities.  From 1 July 2017, individuals shall be allowed to claim up to CNY 2,400 per annum as IIT deductions in respect of premiums paid for qualified commercial health insurance products.  [CNY 1 = USD 0.147 | CNY 1 = EUR 0.1306 | CNY 1 = GBP 0.114 | CNY 1 = AUD 0.196]

This is in addition to the statutory personal tax deduction, which is currently either CNY 3,500 or CNY 4,800 per month, for individuals earning employment income. 

The annual cap of CNY 2,400 is also subject to a monthly cap of CNY 200, where the employer buys the insurance for the employee, or where the employee and employer share the cost.  Where an employing entity purchases eligible commercial health insurance products for its employees, such expenditure shall be included in the employees’ taxable wages and salaries. The purchase is deemed as being made by these employees and the premiums paid are allowed to be deducted by the employees for IIT purposes up to the limit as stated above.

The monthly cap does not apply to individuals who are self-employed, or engaged in contracted or leased operations of enterprises, or social service providers partly or wholly funded by state assets, sole proprietors, or partners in a partnership, as these are taxed on an annual basis. 

Furthermore, Notice No. 39 also specifies the standards and conditions which products much meet in order to be treated as qualified commercial health insurance products.  Criteria are set out concerning how product types are to be structured in relation to different target groups. 

KPMG NOTE

Previously, 31 cities in China, including Beijing, Shanghai, Tianjin, and Chongqing, were permitted to allow local taxpayers to claim an IIT deduction for the premium paid for qualified commercial health insurance products.  

As Notice No. 39 will expand the program to the entire country, it will provide an important supplement to China’s existing state-financed social insurance schemes and basic medical insurance products, and accelerate the development of the commercial health insurance industry.

So far, CIRC has identified five batches of insurance companies that are permitted to sell qualified commercial health insurance products.  Companies can obtain such lists from the official Web site of CIRC, and assist their employees to purchase qualified commercial health insurance products.  

Meanwhile, companies, as IIT withholding agents, are obliged to establish mechanisms to administer the tax deduction claim for allowable premiums. This is to help ensure that deduction claims are made in accordance with Notice No. 39 and the requirements of local tax authorities. 

FOOTNOTE

1  Notice on Expanding the Pilot Policy of Individual Income Tax on Commercial Health Insurance for Nationwide Implementation (Cai Shui [2017] No. 39) jointly issued by the Ministry of Finance, State Administration of Taxation, and China Insurance Regulatory Commission on 2 May 2017, which will come into effect on 1 July 2017. 

RELATED ARTICLE

This article is excerpted, with permission, from “Nationwide Individual Income Tax Deductions for Private Health Insurance,“ in China Tax Alert (Issue 17, May 2017), a publication of the KPMG International member firm in the People’s Republic of China.

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:

 

Michelle Zhou

Partner

Tel. +86 (21) 2212 3458

Michelle.b.zhou@kpmg.com  

 

Jason Jiang

Director

Tel. +86 (21) 2212 3527

Jason.jt.jiang@kpmg.com

 

Minnie Li

Manager

Tel. +86 (21) 2212 3321

Minnie.li@kpmg.com

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

© 2017 KPMG Huazhen LLP — a People's Republic of China partnership, KPMG Advisory (China) Limited — a wholly foreign owned enterprise in China, and KPMG — a Hong Kong partnership, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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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