On 14 December 2019, the People’s Republic of China’s tax authorities issued two announcements that set out some new requirements regarding the 2019 Annual Reconciliation as to relevant taxpayers and income types, the calculation formula for one’s tax, the timeframe and process for filing, and other issues. There are some outstanding issues that require guidance, such as, whether withholding agents or tax professionals can assist with tax refund applications for non-domiciled resident individuals who have already left China and no longer maintain Chinese bank accounts.
On 14 December 2019, the Ministry of Finance and the State Taxation Administration (“STA”) of the People’s Republic of China (“PRC” or “China”) issued two announcements that set out some new requirements regarding the 2019 Annual Reconciliation as to relevant taxpayers and income types, the calculation formula for one’s tax, the timeframe and process for filing, and other issues.
The authorities 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 was 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 continue to carry the spirit of the PRC 2019 individual income tax reform, which aims to reduce the tax burden and administrative obstacles for taxpayers while empowering enforcement by the tax authorities.
Announcement 94 and the consultation document primarily set out the following requirements on the 2019 Annual Reconciliation.
Resident taxpayers who have received comprehensive income1 (i.e., employment income, independent personal services income, author’s remuneration and royalty income) between 1 January 2019 and 31 December 2019.
Tax liability or refund due for 2019 tax year equals:
(Comprehensive income - 60,000, social insurance contributions, itemised deductions and other allowable deductions) x Applicable tax rate - Quick deduction - Tax withheld for 2019
Standard timeframe: 1 March to 30 June 2020.
Special timeframe applies in the following circumstances:
Online, post, or appear at tax bureau service centres.
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 the employee population, and define business processes to help ensure that the Annual Reconciliation can be completed in a timely manner. Where necessary, withholding agents may seek assistance from professional organisations so 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 should prompt taxpayers to be more aware of the PRC 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.
Anticipated Next Steps
The KPMG International member firm in China awaits the authorities’ release of further guidance on the following:
KPMG will continue to closely follow the relevant policies on Annual Reconciliation, report on policy developments, and share our practical experiences with the tax authorities.
1 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.
2 Where withholding agents fail to apply correct tax withholding, resident taxpayers will be required to file Annual Reconciliation to settle additional tax due.
CNY 1 = EUR 0.129
CNY 1 = USD 0.144
CNY 1 = GBP 0.11
CNY 1 = AUD 0.21
CNY 1 = CAD 0.187
The information contained in this newsletter was submitted by the KPMG International member firm in the People’s Republic of China.
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