Announcements on relevant PRC individual income tax policies regarding Annual Consolidated Income Tax Reconciliation
On 14 December and 31 December, the Ministry of Finance and State Taxation Administration (SAT) published two announcements to provide guidance documents on the Annual Consolidated Income Tax Reconciliation (ATR) process following the implementation of new PRC Individual Income Tax (IIT) law and regulations with effective from 1 January 2019.
Key contents
ATR liability/refund calculation method
PRC resident individuals who have received consolidated income (i.e. wages and salary, personal service remuneration, author’s remuneration and royalties) between 1 January and 31 December 2019 should follow the below calculation formula to calculate ATR liability:
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2019 Tax liability/refund
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=
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(
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Total Consolidated Income
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-
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RMB60,000/Social Insurance contributions/itemized deductions/other allowable deductions/donations
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)
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x
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Applicable Tax Rate
|
-
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Quick Deduction
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-
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IIT Withheld for Year 2019
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Circumstances under which no ATR is required
The Announcements stipulated that PRC resident individuals could be exempt from ATR filing for Year 2019 and 2020 if any of the following conditions are met:
- Additional tax due but annual consolidated income does not exceed RMB120,000 in Year 2019 or 2020;
- Additional tax due does not exceed RMB400 in Year 2019 or 2020;
- Total tax liability equals tax withheld;
- Taxpayers who decide not to seek tax refund.
Circumstances under which ATR is required
PRC resident individuals are required to perform ATR filing for Year 2019 if any of the following conditions are met:
- Total tax liability exceeds tax already withheld for Year 2019 whilst taxpayers would like to seek tax refund;
- Annual consolidated income exceeds RMB120,000 and additional tax due exceeds RMB400 in Year 2019;
- Taxpayers who have additional qualified tax deductions to claim for Year 2019.
Filing period for 2019 ATR filing
- Standard filing period: 1 March to 30 June 2020;
- Special filing period applies in the following circumstances:
- Non-domiciled individuals who depart from China prior to the standard filing period can file ATR before their departure date;
- For taxpayers whose annual consolidated income does not exceed RMB60,000 whilst relevant tax liabilities have already been pre-withheld by tax withholding agents, they can apply for tax refund between 1 March and 31 May 2020.
Impacts
- Withholding agents play a key role in the collection of PRC IIT for taxpayers in China. They should be responsible to provide necessary assistance and documents upon taxpayers’ request;
- Taxpayers should review the accuracy of their declared itemised deductions, assess whether they are required to file ATR based on their personal circumstances and complete the filing process in a timely manner;
- There are still some open cases regarding the ATR which need to be further guided by the tax authorities:
- Whether withholding agents can assist on tax refund application for non-domiciled resident individuals who have already left China without a Chinese bank account;
- Whether PRC resident individuals who received consolidated income overseas in Year 2019 should file ATR;
Our recommendations
- Withholding agents should follow relevant policies and provide guidance to the employees to ensure that the ATR can be completed accurately and timely. It is suggested to seek assistance from professional agents in order to guarantee that their legal obligations can be effectively fulfilled;
- Withholding agents/taxpayers should be familiar with the updated PRC IIT law and regulations (e.g. the concept of consolidated income, definition and applicable rules of itemized deductions) in order to fully utilise relevant deductions/benefits;
- Withholding agents/taxpayers shall pay close attention on the further guidance published by SAT for the uncertain matters regarding ATR filing and seek professional assistance if necessary.
BDO China International Tax Service team is experienced in handling the relevant IIT matters and providing professional IIT advisory for both foreign and Chinese individuals. We will follow up the rapid changes in China regulatory environment, keep you posted and share our primary source to you accordingly.
For further information in relation to above topic, please do not hesitate to contact us.
Gordon Gao
gordon.g@bdo.com.cn
Rebecca Chen
rebecca.chen@bdo.com.cn