GuoShuiFa [1998] No.101 June 26, 1998

The state and local taxation bureaus of various provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan:

It¡¦s reported that some enterprises with foreign investment and foreign enterprises (hereinafter referred to as enterprises) which have set up the institutions and branches in China have paid directly or indirectly to the insurance institutions abroad (including social and commercial insurance institutions) the premiums of unemployment, pension, saving, insurance of life accident injury, medical and other items for the employees working in China (employees with and without resident house in China inclusive) as the welfare or bounty policy, according to the requirements of social security policy in the relative countries or regions. The following states definitely the principles about the tax imposed on the premium abroad:

I. Taxation on the business income tax

According to the Rules for the Implementation of the Law of the Income Tax of the People's Republic of China on the Enterprises with Foreign Investment and Foreign Enterprises (hereinafter referred to as the Rules), both the 10th Subparagraph of Article 19 and Paragraph 2 of Article 24 prescribe that the various commercial life insurance premium and social security premium abroad paid or afforded by the enterprises for the employees working in China should not be deducted in the business income tax unless it is paid as the salary and stipend of employees, which is stipulated in Paragraph 1 of Article 24.

II. Taxation on the individual income tax

1. The various insurance premiums abroad paid by the enterprises for the employees working in China and deducted from the business income tax in name of the salary and stipend of the employees should be reckoned in the salary and stipend of the employees, which is applied to the Law of the People's Republic of China on Individual Income Tax and the relative provisions of international taxation on the application for individual income tax.

2. The various insurance premiums abroad paid by the enterprises for the employee working in China not deducted from the income tax of enterprises should be reckoned in the salary and stipend of the employees in principle, which is applicable to the Law of the People's Republic of China on Individual Income Tax and the related provisions of international taxation on the application for individual income tax. But the premium of the social security in accordance with the state law can be reckon out of the income tax of the employee after verified by the related local taxation institution.

3. The varied insurance premium abroad paid individually by the employee working in China should not be deducted from the his individual income tax.

III. The Circular shall enter into force as of the date of promulgation. The previous stipulations adverse to it suspend.

Promulgated by The Taxation Bureau of State on 1998-6-26