China Tax Alert - Issue 39, December 2019
On 14 December 2019, the Ministry of Finance and the State Taxation Administration (“STA”) published Announcement 94 of 2019 – “Announcement on relevant policies regarding individual income tax annual comprehensive income tax reconciliation” (hereinafter referred to as Announcement No. 94). At the same time, the STA also published the “Announcement on annual comprehensive income tax reconciliation (consultation document)” (hereinafter referred to as “consultation document”), seeking public opinion on the proposed annual comprehensive income tax reconciliation policy details. The deadline for responding to the public consultation is 26 December 2019.
Announcement 94 and the consultation document are the first guidance documents published on the annual comprehensive income tax reconciliation (hereafter “Annual Reconciliation”) process following the publication of “Implementation rules of the individual income tax law” and “Announcement on individual income tax self-declaration” (Announcement 62 of 2018).
Announcement 94 and the consultation document primarily set out the following requirements on the 2019 Annual Reconciliation:
Relevant taxpayers and income types
Resident taxpayers who have received comprehensive income (i.e. employment income, independent personal services income, author’s remuneration and royalty income) between 1 January 2019 and 31 December 2019.
 Comprehensive income covered under Annual Reconciliation does not include annual bonus payments, one-off compensation payments for redundancy or early retirement, and equity incentives which are subject to special tax treatment.
Circumstances under which no Annual Reconciliation required
 Where withholding agents fail to apply correct tax withholding, resident taxpayers will be required to file Annual Reconciliation to settle additional tax due.
Circumstances under which Annual Reconciliation is required
Timeframe for Annual Reconciliation filing
Standard timeframe: 1 March to 30 June 2020
Special timeframe applies in the following circumstances:
Online, post or attend tax bureau service centres.
Receiving tax bureaus
Tax payment or refund considerations
Announcement 94 and the consultation document continue to carry the spirit of the 2019 individual income tax reform, which aims to reduce the tax burden and lower the administrative obstacles for taxpayers while empowering the enforcement by the tax authorities. Therefore, we would like to highlight the following key points to tax withholding agents and taxpayers:
In view of the significant size of the Chinese taxpayer population, tax withholding agents play a key role in the collection of individual income tax in China. The consultation document clarifies that where individual taxpayers request withholding agents to facilitate their Annual Reconciliation filing, the withholding agent should provide the necessary assistance. As the key communication channel between taxpayers and the tax authorities, withholding agents should proactively communicate the relevant policies and provide guidance to its employee population, and define business processes to ensure that the Annual Reconciliation can be completed in a timely manner. Where necessary, withholding agents may seek assistance from professional organisations to ensure that their legal obligations can be effectively fulfilled.
The amended individual income tax law provides for itemised deductions and the concept of comprehensive income, which demands taxpayers to be more aware of the tax regulations compared to the old tax system. Individual taxpayers are responsible for the truthfulness, accuracy and completeness of the information reported to the tax authorities. Taxpayers should review the accuracy of their declared itemised deductions, assess whether they are required to file the Annual Reconciliation based on their personal circumstances and complete the filing process in a timely manner.
Meanwhile, we await the authorities to release further guidance on the following:
KPMG will continue to closely follow the relevant policies on Annual Reconciliation, and proactively discuss policy developments and share our practical experiences with the tax authorities. We welcome organisations and taxpayers to contact us for the latest information on individual taxation.
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