Tax calculations on year-end bonus
China State Administration of Tax (SAT) published Circular.No.164 dated Dec 27, 2018 providing transitional rules on the favorable tax treatment for taxation of annual bonus. SAT has clarified that it is not necessary to include year-end bonuses in comprehensive income calculations until Dec 31, 2021. However, a taxpayer can choose to include the bonus if he / she wants to do so. From Jan 01, 2022 however, this option will not be available, and the bonus will form part of total income for tax calculation purposes.
In addition, income from stock incentive plans will be also taxed in the same manner as that applicable for year-end bonuses. The changes in the tax slabs and rates (as applicable to both salary income and bonuses) and quick deductions for annual bonuses are as follows:
New tax brackets and rates (w.e.f. from Oct 01, 2018):
| New tax Bracket (RMB) | Rate | Quick deduction |
| 0-36,000 | 3% | 0 |
| 36,000-144,000 | 10% | 210 |
| 144,000-300,000 | 20% | 1,410 |
| 300,000-420,000 | 25% | 2,660 |
| 420,000-660,000 | 30% | 4,410 |
| 660,000-960,000 | 35% | 7,160 |
| 960,000-above | 45% | 15,160 |
Old tax brackets and rates:
| Old tax Bracket (RMB) | Rate | Quick deduction |
| 0-18,000 | 3% | 0 |
| 18,000-54,000 | 10% | 105 |
| 54,000-108,000 | 20% | 555 |
| 108,000-420,000 | 25% | 1,005 |
| 420,000-660,000 | 30% | 2,755 |
| 660,000-960,000 | 35% | 5,505 |
| 960,000-above | 45% | 13,505 |
Implications / action points
- Employers should obtain a declaration / confirmation from the employee every year that they want to opt for taxing the annual bonus separately and not as a part of comprehensive income.
- Change the withholding tax amounts from 1 October 2018 for salary income as well as for annual bonus
For more information on this important topic and how we may be of assistance, please contact: info@Nucleus-co.com