This report explains that individuals in China nation-wide can soon claim as IIT deductions premiums paid for qualified commercial health insurance products.
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.
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.
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  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.
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.
1 Notice on Expanding the Pilot Policy of Individual Income Tax on Commercial Health Insurance for Nationwide Implementation (Cai Shui  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.
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.
The information contained in this newsletter was submitted by the KPMG International member firm in the People’s Republic of China.
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