China's State Administration of Taxation (SAT) has announced that it will begin taxing year-end bonuses at a lower rate reflecting their one-time status.
(OPENPRESS) October 17, 2009 -- China's State Administration of Taxation (SAT) has announced that it will begin taxing year-end bonuses at a lower rate reflecting their one-time status. The SAT made this clarification after the administration said it scrapped its previous practice of levying tax at year-end. Under the new policy, the year-end bonus will be deemed a one-off yearly bonus that can be divided by 12 to determine the tax rate.
Scott Garner of Lehman, Lee & Xu commented that "this will have a significant impact on the taxation of bonuses in China. Under China's individual income tax law, individuals file their tax returns and pay income tax on a monthly basis. As China's tax rates are graduated based on a monthly income level, a one time bonus at the end of the year could very easily put that months income into the higher tax brackets. Under the new policy, the bonus will be divided evenly throughout the year rather than all in one month. This should tend to have the effect of taxing the bonus at lower rates. In the past, this has frequently been a major issue of contention when our firm was involved with terminating employees and calculating severance payments and tax withholdings. Terminated employees frequently did not understand the tax law and our clients have frequently seen higher professional fees as a result of lengthy negotiations with employees on how to calculate the withholding tax on the bonus payment. This policy change will not only be beneficial to employees who ultimately pay the income tax on the bonus but also be beneficial to clients, who should see less instances of arbitration and litigation regarding the taxation of bonus payments."
Lehman, Lee & Xu is a prominent Chinese corporate law firm and trademark and patent agency with offices in Beijing, Shanghai, Shenzhen, Hong Kong, Macau, and Mongolia. The firm is recognized as a leading expert in corporate law and an active member of the Shanghai community.
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