Retirement Plans, Tax-Advantaged Accounts, and Estate Basics
This domain tests the tax and retirement wrapper around a portfolio: China's three-pillar pension system, the personal pension account, how investment income is taxed, and the succession rules that determine who inherits an account. Dividend-tax arithmetic and the succession order are the most testable specifics.
The three pillars
- Pillar one: basic pension insurance, mandatory and pay-as-you-go. Pillar two: enterprise annuities and occupational annuities, with employer contributions up to 8% of wages and combined contributions up to 12%. Pillar three: the personal pension account launched in November 2022.
- Personal pension: cap of 12,000 yuan per year, contributions deductible from taxable income now, investment growth untaxed, and withdrawals taxed at 3% - an EET structure. Money is locked until retirement age or other qualifying events, and it can buy eligible deposits, wealth-management products, commercial pension insurance and public funds.
Tax treatment of investments
- Capital gains on listed shares held by individuals are temporarily exempt.
- Dividend tax depends on holding period: one month or less, the full dividend is taxed at 20%; one month to one year, 50% is included, giving an effective 10%; over one year, exempt.
- Interest on bonds and deposits is generally taxed at 20%.
Estate basics
- The Civil Code sets first-order heirs as spouse, children and parents; second order is siblings, grandparents and maternal grandparents. A valid will overrides intestacy, and since 2021 no will form has automatic priority - the last valid will prevails. China does not currently levy an inheritance tax.
Worked example
An investor holds 10,000 shares and receives a 0.50 yuan per-share dividend, then sells after 90 days. What is the tax?
Reasoning: dividend = 10,000 × 0.50 = 5,000 yuan. Holding period of 90 days falls in the one-month-to-one-year band, so 50% is included in taxable income: 2,500 × 20% = 500 yuan withheld. Held 20 days, the full 5,000 would be taxed, i.e. 1,000 yuan. Held beyond a year, 0. The strategy implication is clear, and so is the client-communication requirement.
Traps that cost marks
- Taxing the full dividend at 20% regardless of holding period.
- Treating the personal pension as fully tax-free rather than tax-deferred.
- Assuming a notarised will outranks a later handwritten one.