These two sets of tools address issues at two different levels.

An enterprise pension plan isAt the employer levelThe supplementary pension system is funded by contributions from both employers and employees and is managed by professional institutions on a market-based basis; individual pensions areAt the individual levelUnder this institutional arrangement, participants independently open accounts at financial institutions that meet the requirements and independently select investment products; the system operates on an individual account basis.

The two can be used together or separately, and their tax treatment rules are distinct. Many business owners tend to confuse the two, which often leads them to choose the wrong tool when designing employee benefit plans.

Tax Treatment of Corporate Pension Plans

Under current regulations, enterprise annuities are administered throughDeferred TaxesMode:

• Employer's Share of Contributions: When employer contributions are credited to an individual's account, the individual is temporarily exempt from paying income tax;
• Individual Contribution Portion: For amounts not exceeding the prescribed standard for the taxable wage base, such amounts shall be temporarily deducted from the individual's taxable income for the current period. Specific standards:Subject to current policies(The standard rate is 4% of the taxpayer’s wage base for tax calculation);
• Pre-tax Deductions for Corporate Contributions: Supplementary pension insurance premiums paid by an enterprise for all employees serving or employed by the enterprise are deductible when calculating taxable income, provided the amount does not exceed the prescribed percentage of the total employee payroll (the common threshold is 5%);
• Redemption Process: Upon reaching the retirement age specified by the state, you will receive an annuity, which is subject to personal income tax in accordance with regulations.

The upper limit on employer contribution rates and the deduction standards for individual contributions are policy-based figures,Specific provisions shall be governed by the current documents issued by the Ministry of Finance, the Ministry of Human Resources and Social Security, and the State Taxation Administration., and the figures may have been adjusted over time.

Tax Treatment of Individual Retirement Accounts

Implementation of the Individual Pension PlanEET (Tax-Deductible Contributions, Tax-Exempt Investments, Taxable Withdrawals)Mode:

• Payment Process: Deducted on an actual basis from comprehensive income or business income in accordance with the annual limit; the current annual limit is 12,000 yuan;
• Investment Process: Investment income credited to an individual pension account is temporarily exempt from personal income tax;
• Redemption Process: Withdrawn personal pension funds are not included in comprehensive income; instead, income tax is calculated and paid separately at a lower rate.

Eligibility criteria and specific enrollment procedures are subject to the rules published by the human resources and social security authorities. The program has been rolled out nationwide, and participants can open an account through a commercial bank or a designated platform.

Three Practical Considerations from the Company’s Perspective

1. Corporate pension plans are required to cover all employees. Corporate pension plans must be established through collective bargaining and filed with the appropriate authorities. They are typically required to cover all eligible employees and cannot be limited to a small number of senior executives; otherwise, both pre-tax deductions and tax deferral benefits may be affected.
2. Costs and employee retention should be considered together. Corporate pension plans are a long-term financial commitment; once established, they entail an ongoing obligation to make contributions. For positions with high employee turnover, their actual effectiveness in retaining employees may fall short of expectations.
3. Individual retirement accounts are better suited as ”employee-selected benefits.” Companies can encourage employees to open accounts through compensation discussions, but the contributions are borne by the individuals themselves and do not result in long-term, fixed expenses for the company.

Key Considerations for Cross-Border and Group Scenarios

If a company has both a mainland entity and a Hong Kong entity, the retirement benefit arrangements for each are two separate systems: Hong Kong operates a Mandatory Provident Fund (MPF) system, while the mainland operates a system consisting of basic old-age insurance and supplementary insurance. The contribution obligations and tax treatments of the two systems are not aligned and cannot be offset against or substituted for one another. When designing benefit plans for cross-border employee assignments, it is necessary to first identify the mandatory obligations in each jurisdiction separately and then layer supplementary arrangements on top of them.

Qicaiying can assist companies in designing parallel employee benefit and retirement plans for mainland China and Hong Kong, and in conducting tax compliance assessments. Specific policies are subject to the announcements issued by the Ministry of Finance, the Ministry of Human Resources and Social Security, and the State Taxation Administration.