Lump sum severance pay made to individuals as a result of termination of their employment contracts is treated as wages and salaries for China tax purpose. Severance pay to the extent the amount exceeding three times the previous year's average salary of the concerned locality is taxable. In addition, such lump sum payment may be spread over a period of time (with a maximum of 12 months) to determine the applicable top marginal tax rate.
Our services include:
- Calculating the China tax with respect to the severance pay, taking into account the portion relating to the China assignment / employment period; and
- Advising the China tax reporting requirements for employer and employee.