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China: Final guidance, comprehensive income tax annual reconciliation for 2019

China: Final guidance, comprehensive income tax

The State Taxation Administration published guidance Announcement No. 44 (known in English as: “Announcement on relevant policies regarding 2019 individual income tax annual comprehensive income tax reconciliation”) to clarify details of the 2019 annual comprehensive income tax reconciliation (or “annual reconciliation”).

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Related content

Announcement No. 44 was issued after completion of public consultation on “Announcement on annual comprehensive income tax reconciliation.” Read TaxNewsFlash

Overview

Announcement No. 44 broadly adopts the policies set out in the consultation document, but also introduced the following additions and changes:

Obligations of withholding agents

  • When requested by the taxpayer, withholding agents must facilitate the annual reconciliation filing on behalf of the taxpayer, or provide training or guidance to help taxpayers complete the annual reconciliation online filing (including via the mobile App) and the tax payment-refund process.
  • When the withholding agent completes the filing on behalf of the taxpayer, the taxpayer must agree with the withholding agent in writing by 30 April 2020, and provide relevant information including additional comprehensive income, deductions, and other allowable beneficial tax treatment to the withholding agent. The taxpayer will be responsible for the truthfulness, accuracy and completeness of the information provided.


Information reporting and retention

  • During the filing process, in addition to submitting the annual reconciliation form to the tax authorities, taxpayers must update relevant personal information (if necessary). Those who are claiming additional deductions or beneficial tax treatments need to carefully check the claims to determine they are truthful, accurate, and complete.
  • Taxpayers and withholding agents who file on behalf of taxpayers must retain the annual reconciliation form and the relevant supporting documents (including those related to comprehensive income, deductions, tax withholding, and beneficial tax treatment) for five years from the completion date of the annual reconciliation. 

KPMG observation

Following the public consultation, Announcement No. 44 further clarifies the obligations of individual taxpayers and withholding agents. It continues to focus on the traditionally successful strategy of using the withholding mechanism, and aims to ease the administrative burdens on individual taxpayers. 

In the meantime, while confirming the obligations of withholding agents, Announcement No. 44 provides that withholding agents can also support the taxpayers by providing training and guidance to complete the annual reconciliation online filing as well as tax payment or refund process. The tax authorities will also introduce a series of relevant services (including enhancement of policy interpretation and administrative support, providing filing software to withholding agents) in order to reduce the burdens on withholding agents.

As the first annual reconciliation under the latest tax reform, it brings challenges to taxpayers and withholding agents. Considering the complex and technical nature of taxation, Announcement No. 44 also emphasises that annual reconciliation can be performed by professional tax advisers. This implies that withholding agents and taxpayers need to consider seeking support from professional advisers to determine that their obligations are fulfilled in a timely manner. In particular, the following entities need to consider contacting professional advisers in respect of the 2019 annual reconciliation:

  • Large-employee population but limited in-house human resource capacity
  • Relatively high-employee fluidity (a large number of intra-group employee transfers) with resulting filing obligation requirements
  • Complex employee structure with additional technical challenges (locally hired foreigners, expatriate employees, outbound Chinese employees, etc.)


For more information, contact a KPMG tax professional:

David Ling | +1 609 874 4381 | davidxling@kpmg.com

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