China Clarifies Individual Income Tax for Work-Related Injury Compensation

In order to fully implement the “Regulation on Work-Related Injury Insurances (Order of the State Council No.586, hereinafter referred as the ‘Regulation’),” the Chinese government issued the “Notice on Issues Regarding Individual Income Tax for Compensations of Work-Related Injury Insurances (caishui[2012] No.40, hereinafter referred as the ‘Notice’)” on May 3, 2012 in accordance with the income tax exempt items in Article 4 of Individual Income Tax Law of the People’s Republic of China.

According to the Notice, the benefits and compensation distributed to injured employees and their close relatives through the work-related injury insurance system will be tax exempt. The benefits of the work-related injury insurance system covered under the Regulation include:

1. One-time compensation for disable grant-in-aid and disability allowance
2. One-time medical allowance for work-related injuries
3. One-time employment allowance for work-related injuries
4. Work-related medical treatment; hospital meal allowance; transportation; room and board costs for going to an out-of-town hospital; rehabilitation cost for work-related injuries; cost for technical aids; and nursing costs
5. Funeral subsidies, pension for dependants, and one-time compensation for work-related death

The Notice was effective from January 1, 2011. Those who have paid individual income tax for the abovementioned items after January 1, 2011 can request tax rebates from the related tax authorities.

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