Welfare Payments to be Redefined as Taxable Income

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Dec. 4 – China’s Ministry of Finance (MOF) has released a notice that will reconsider welfare payments like transportation payments, communication subsidies and other benefits previously not subject to tax as part of an individual’s taxable income.

The new regulation is a reaction to a nationwide inspection campaign launched by the State Administration of Taxation in September where it was  uncovered that unreasonably high welfare payments were being paid  to employees of large monopoly enterprises leading them to pay lower income taxes.

“The regulation will allow us to better regulate the pay of high-income senior managers at SOE and also the relatively high income of employees in other large and medium-sized enterprises,” an MOF official told the Economic Observer.

The new regulation is expected to affect employees whose companies offer welfare payments in addition to a fixed salary.

For more guidance on income tax management, contact Sabrina Zhang, the national tax partner for Dezan Shira & Associates at tax@dezshira.com.