SAT: Overtime Payments are Subject to IIT
Feb. 21 – Overtime payments that an individual has earned by working on official government-mandated holidays are subject to individual income tax (IIT), China’s State Administration of Taxation (SAT) clarified on Monday.
According to Item 3, Article 4 of the Chinese “IIT Law (PRC Chairman Decree [2011] No.48),” the subsidies and allowances an individual receives in accordance with nationwide provisions are exempt from IIT. However, there has been some confusion in the exact definition of such IIT-free subsidies and allowances.
For example, under Article 44 of the Chinese “Labor Law (PRC Chairman Decree [1994] No.28),” an employer shall pay overtime compensation to its employees who work extra hours or on official holidays, following nationwide standards. So should such overtime payments regarded as “subsidies and allowances under nationwide provisions?”
The SAT provided a clear answer to this question yesterday. According to Article 13 of the “Implementation Details of the IIT Law (State Council Decree [2011] No.900),” IIT-free subsidies and allowances refer to special government allowances, (senior) academician allowances, as well as other IIT-free subsidies/allowances provided by the State Council, and do not include overtime payments. Therefore, IIT shall be charged on overtime compensation income, together with other types of income.
Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China, Hong Kong, India, Singapore, and Vietnam. For further information or clarification on China’s taxation or HR policies, please email china@dezshira.com.
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