Announcement No. 13, which applies from 1 July 2020, is intended to support graduates entering the workforce as new employees or as students pursuing internships. Under new policy issued by the tax authority of the People’s Republic of China, individual income tax (IIT) relief can be given by enlarging the personal deduction used when calculating IIT withholding each month. There are conditions for qualifying for this new treatment.
On 28 July 2020, the State Taxation Administration (STA) of the People’s Republic of China issued new policy that provides for decreasing the individual income tax (IIT) withholding imposed on the income of new employees and interns.
The policy was embodied in STA Announcement  No. 13 - “Announcement on Adjusting the Individual Income Tax (IIT) Withholding Method for Certain Taxpayers.”
This policy could have the result of putting more cash in the pockets of new employees and interns; although, this will not reduce their year-end tax bills.
Withholding agents, payroll administrators, and employers may need to revise their payroll processes, make adjustments to withholding, and modify their record-keeping and document retention policies for the individuals concerned.
Announcement No. 13, which applies from 1 July 2020, is intended to support graduates entering the workforce as new employees or as students pursuing internships. To qualify, such new employees must be “resident individuals,” defined as those who have a domicile in the People’s Republic of China (“PRC” or “China”), or individuals who do not have a domicile in China but reside in China for 183 days or more during a calendar year.
The relief is given by enlarging the personal deduction used when calculating IIT withholding each month. For employees the rules would normally reduce the RMB 5,000 monthly allowance to reflect the number of months actually in employment in the year; this is now adjusted as if the employee had commenced employment at the start of the calendar year. The new treatment via the modified IIT withholding calculation method is also applied to interns.
Supporting documents must be retained by the IIT taxpayers and their employing withholding agents in case of future tax audit. Documents confirming eligibility will vary by graduates (graduation certificate or employment dispatch certificate), interns (student card), or other employees who derive income from salary and wages for the first time during the year (commitment letter).
Where foreign employees are hired, they should be expected to reside in China for 183 days or more during a calendar year to be eligible.
For taxpayers and foreign employees who have started employment/internships prior to 1 July 2020, and had IIT over-withheld for the year, annual reconciliation tax filing may be required after year end to claim tax refunds where applicable. Please consult with your qualified tax professional or with a member of KPMG’s tax team (see the Contact Us section) for an evaluation of your situation and assistance.
This article is excerpted, with permission, from “Individual Income Tax Relief for New Employees and Interns” in China Tax Alert (Issue 28, August 2020), a publication of the KPMG International member firm in the People’s Republic of China.
The information contained in this newsletter was submitted by the KPMG International member firm in the People’s Republic of China.
To subscribe to GMS Flash Alert, fill out the subscription form.
© 2021 KPMG Advisory (China) Limited, a wholly foreign owned enterprise in China and KPMG Huazhen, a Sino-foreign joint venture in China, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.