On May 8, 2015, the State Administration of Taxation, Ministry
of Finance and China Insurance Regulatory Commission promulgated
the "Notice on carrying out the pilot work concerning the
individual income tax on the commercial health insurance
premium" (hereinafter "the Notice", Document No. Cai
Shui  No. 56) to the financial departments (bureaus) and
local taxation bureaus of all provinces, autonomous regions,
centrally-administered municipalities, and China Insurance
What kind of health insurance product is qualified
The commercial health insurance scheme should be approved by the
provincial finance, taxation and insurance supervision
What amount can be deducted
In order to further develop the commercial health insurance
coverage, the following contributions can be exempted from the
taxable income of individual income tax:
Employee's purchase on commercial
health insurance not exceeding RMB2,400 per year (RMB200 per
Employer's purchase on commercial
health insurance on behalf of the employees not exceeding RMB2,400
per year (RMB200 per month)
Which location can apply for the tax deduction
In accordance with the Notice, the enterprises registered on the
following locations could benefit from this Notice:
Pilot city elected by each other
province and autonomous region
Who can benefit from this Notice
This policy applies to the taxpayers deriving taxable income on
the following categories:
The Notice will encourage the general public to purchase
comprehensive health insurance products by providing tax break for
qualified commercial health insurance products, and also
demonstrate the resolution of the SAT to reform the individual
income tax regime.
From IIT perspective:
Currently, the types of allowable deductions for wage earners in
China are limited. The release of Circular 56 provides some room to
employers for tax effective remuneration planning.
As the insurance premiums can be deducted from the taxable
income, individuals involved are able to save tax payment,
following a simple calculation for tax saving:
Former: monthly taxable income 10,000 RMB IIT = (10,000 –
3,500) X 20% - 555 = 745 RMB
After purchasing the commercial health insurance product:
According to the prevailing CIT law, commercial insurance that a
company pays for its employees is not allowed as deductible expense
for CIT purposes, unless it is specifically advised by finance and
tax authorities. As there is no specific clause regarding the
deduction possibility for CIT purpose mentioned in Circular 56, the
practice would remain unchanged.
The following points would be further confirmed before the
In addition to the municipalities,
the pilot city should be further determined;
If the commercial health insurance is
purchased by the individual directly, how to proceed with the
deduction from their taxable income for individual income tax.
What documentation should be
submitted to the employers for their further actions
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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