China: Individual income tax filing procedures clarified

China: Individual income tax filing procedure clarified

The State Taxation Administration on 8 February 2021 published guidance—Announcement [2021] No. 2, that in English is known as: “Announcement on relevant matters regarding the 2020 annual individual comprehensive income tax reconciliation filing”—to clarify certain procedures regarding the individual income tax return for 2020.

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The guidance is intended to help individual taxpayers complete their 2020 annual individual comprehensive income tax reconciliation filing (or the annual reconciliation). The guidance continues the framework set out in Announcement [2019] No. 44 for the 2019 annual reconciliation, but introduces new measures to streamline and simplify the process.

Announcement [2021] No. 2

New guidance is provided concerning:

  • Annual reconciliation requirements for employers
    • When individual taxpayers authorize their employers to complete the 2020 annual reconciliation filing on their behalves, the taxpayers must confirm authorization either in writing or electronically by 30 April 2021.
    • The use of electronic forms is introduced as an additional confirmation method when taxpayers request their employers to complete the 2020 annual reconciliation on their behalves (i.e., taxpayers can provide confirmation via an electronic form such as email, SMS, WeChat). This has the same legal force as that of written confirmation.
    • In order to protect the rights and interests of taxpayers, employers are not to perform the annual reconciliation on behalf of individual taxpayers without their confirmation.
  • Tax refund application for 2020 annual reconciliation
    • Taxpayers whose 2019 annual reconciliation is still outstanding (i.e., unsettled tax liability or have yet to respond to a tax authority enquiry) can only proceed with a tax refund claim for the 2020 annual reconciliation upon completion of their 2019 annual reconciliation.
  • New “first breach without penalty” system
    • This covers instances when a taxpayer unintentionally makes an error on the annual reconciliation that results in an overclaim for a tax refund or underpaid tax, and subsequently makes an amended tax filing either voluntarily or in response to enquiries raised by tax authorities. In such cases, the new “first breach without penalty” system can be applied (i.e., the tax authorities may exempt the taxpayer from administrative penalties).

KPMG observation

Announcement No. 2 has standardized and enhanced some procedures relating to the annual reconciliation filings so that the rights and interests of individual taxpayers are safeguarded. Employers and individual taxpayers may need to consider the following matters when performing the 2020 annual reconciliation.

Employers would review and improve their internal administration process, drawing on experience gained with the 2019 annual reconciliation:

  • Assist employees to assess their annual reconciliation obligation
  • Provide support to employees by way of training and guidance to complete the 2020 annual reconciliation
  • Develop templates for employee authorization / confirmation (in written / electronic form) for employees to authorize the employer to complete the annual reconciliation on the employee’s behalf
  • Assist with the 2020 annual reconciliation declaration and tax payment or refund
  • Retain relevant documents to support 2020 annual reconciliation in case of future tax audit

Announcement No. 2 emphasizes that tax refund claims in respect of the 2020 annual reconciliation must be reviewed and processed based on the status of an individual taxpayer’s 2019 annual reconciliation. As such, individual taxpayers need to review the status of their annual reconciliation for prior years as part of their 2020 annual reconciliation, to allow for timely completion of their 2020 annual reconciliation in good faith. In case of failure to do so, the personal credit rating score may be affected.


For more information, contact a KPMG tax professional:

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

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