China introduces tax incentives to strengthen financial sustainability of social security system

China's Ministry of Finance and the State Taxation Administration issued a notice on Tuesday outlining new tax support measures targeting state assets transferred to supplement the country's social security funds, as part of broader efforts to strengthen the financial sustainability of China's social security system amid an aging population.

The policy is designed to facilitate the management of state-owned capital and cash returns that have been transferred to supplement the social security funds. It provides a series of tax relief measures for entities responsible for managing these assets.

According to the notice, value-added tax (VAT) will be exempted on all interest and financial product transfer income generated from investment activities involving the transferred state-owned equity and cash returns. In addition, income derived from transferring the state-owned shares or investing the cash returns will be treated as non-taxable income.

The policy is effective from April 1, 2024. Taxes already paid prior to the issuance of the notice that fall under these new rules are eligible for refund, the notice said.

In 2017, China made the decision to transfer some state assets to the country's social security funds, improving the system's ability to meet future pension obligations amid an aging population. The move was aimed at ensuring the sustainable development of the country's basic pension insurance system, while also diversifying the capital structure of state-owned enterprises. ■