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TAX & FINANCE: First annual reconciliation filing for Individual Income Tax
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First annual reconciliation filing for Individual Income Tax
Recap and experience sharing
首次个税汇算清缴 — 经验总结与分享
By Sophia Li, PwC

BT 202009 TAX 02The Public Notice regarding 2019 Annual Individual Income Tax (“IIT”) Reconciliation Filing for Comprehensive Income (Public Notice [2019] No. 44) issued by the State Taxation Administration (“STA”) summarises the relevant policies and provides guidance for the annual IIT reconciliation filing for comprehensive income (hereinafter referred to as “annual reconciliation filing”). It clarifies the scenarios subject to the filing requirements as well as those qualified for exemption, and it also specifies the filing period, filing method and channels, etc. With the joint efforts and close cooperation of tax authorities at all levels, entities, and individual taxpayers, the first annual reconciliation filing after the latest round of IIT reform came to an end on 30 June 2020. On 1 July 2020, the STA issued a Letter to Individual Income Tax Payers (“the Letter”), which reminded taxpayers to make corrections or supplementary declarations as soon as possible if there were any pending matters about the annual reconciliation filing. The Letter also mentioned that tax authorities will initiate random checks and inspections in this regard.
 

In this article, we will review the declaration process of the 2019 annual reconciliation filing, focusing on the hot topics and common difficulties encountered by the entities and individuals in practice, and share our thoughts and comments for further considerations and actions.
 

国家税务总局发布的2019年第44号《关于办理2019年度个人所得税综合所得汇算清缴事项的公告》,为合理有序办理个人所得税综合所得汇算清缴进行了总结性的归纳及政策性的指引,明确了需要办理和无需办理年度汇算清缴的情况,规定了办理时间、办理方式、办理渠道等。在各级税务机关、企业、个人的共同努力、相互配合下,中国个税改革后的首次年度汇算清缴于今年6月30日暂时告一段落。2020年7月1日,国家税务总局发布了“致个人所得税纳税人的一封信”,信中提醒纳税人如有未尽事宜,应尽快依法办理更正或补充申报。该信同时提到,税务部门后续会对纳税人办理年度汇算清缴开展随机抽查。
 

在本文中,我们将回顾2019年度综合所得汇算清缴实际申报过程,对企业及个人遇到的热点、难点进行梳理和总结,为后续个税工作提供一些参考及启发。

BT 202009 TAX 051. Complexity about the IIT adjustment calculation and declaration in case of changes in foreign individuals’ China tax residency status

The new IIT Law introduces the concept of “resident individuals” and “non-resident individuals” for IIT purpose. If a foreign individual’s residency status changes from a non-resident individual (who has resided in China for an aggregate of less than 183 days within a tax year) to a resident individual (who has resided in China for an aggregate of 183 days or more within a tax year), he/she needs to perform the annual reconciliation filing and settle the underpaid IIT or claim the refund accordingly; in case the residency status changes conversely, the IIT annual adjustment filing is then required to be performed by 15 January of the following year. As different IIT calculation and withholding rules, IIT filing modules, and the tax administration requirements apply to non-resident individuals and resident individuals respectively, the complexity is undoubtedly a challenge to the entities or the foreign individuals. Therefore, the entities and foreign individuals should enhance communications and reach an agreement on how to track changes in residency status, and how to carry out and complete relevant IIT adjustment and declarations.
 

1.外籍个人居民身份调整计算以及申报流程的复杂性

在新税法下,引入了居民个人和非居民个人的全新概念。外籍个人如果从非居民个人(在一个纳税年度内在中国境内居住累计不满183天)转为居民个人身份(居住累计满183天),需要通过年度汇算清缴申请补税或退税;反之,则需通过年度调整,于次年1月15日前进行更正。由于非居民个人和居民个人预扣缴税款的计算法则不同、适用的申报模块以及征管要求不同,其相关调整计算及申报流程的复杂性对公司或个人无疑是个难点。因此,企业和外籍个人必须加强沟通,就如何追踪居民个人身份变化、如何开展并完成相关申报、调整工作达成共识。
 

2. Compliance about the declaration of foreign resident individuals' non-taxable benefits (“NTB”) in the annual reconciliation filing

For foreign individuals enjoying the NTB treatment on housing, language training and children's education, etc., complete Form for Reporting Individual Income Tax Reductions and Exemptions should be attached to the annual reconciliation filing to disclose the relevant information to tax authorities. There are various compliance requirements applying to NTB treatment (such as the nature of benefits, documentation and records retention, the reasonableness of NTB amount, etc.), and tax authorities may conduct a follow-up review and verification on NTB after the annual reconciliation filing. The entities shall ensure that the NTB declared during the monthly IIT withholding as well as the annual reconciliation filing satisfies the relevant compliance requirements and the supporting documents and records are well retained for future inspections.
 

2.外籍居民个人免税福利在年度汇算清缴中的披露申报的合规性

外籍个人若享受了住房补贴、语言训练费、子女教育费等免税福利,年度汇算清缴时需附报《个人所得税减免税事项报告表》将相关信息向税务机关披露。由于税法对免税福利有合规性的规定(如福利性质、票据留存、金额合理等),汇算清缴之后可能会有免税福利后续审核管理工作。企业必须确保月度扣缴环节以及年度汇算清缴中申报的免税福利符合合规性要求并保存好票据及其它证明材料备查。

BT 202009 TAX 013. Complexity about the “net take-home pay” package under the cumulative IIT withholding model

If a resident individual changes employers during the tax year therefore receives comprehensive income from two or more sources, most likely he/she will need to make additional IIT payment upon aggregating the income on an annual basis. In the case where it is agreed that the IIT liability would be partially or completely borne by the employer, it will be much more complicated for the entity to manage or assist with the annual reconciliation filing. And the cumulative IIT withholding model under the new IIT Law makes it even more challenging in terms of IIT allocation between the individual and the entity as it requires professional knowledge and expertise.
 

The similar issue also applies to the “tax equalisation” arrangement which is commonly used in dispatching foreign individuals to China and is designed to have the additional overseas tax burden to be borne by the employer for the assignee. Under such arrangement, the equalisation settlement paid to the assignee is generally considered taxable for IIT purpose while the IIT liability thereon shall be borne by the employer. If the assignee under the tax equalisation arrangement changes employers during the year but receives the equalisation settlement from the former employer, it inevitably becomes a dispute on which party should bear the additional IIT payable potentially caused by such payment.
 

3. 公司承担税款的薪资模式结合累计预扣缴计税模式的复杂性

如果居民个人年中更换雇主,在同一纳税年度内取得两处或以上综合所得,合并后需要补税,对于税额部分或全部由公司承担的情况,企业管理/协助其办理年度汇算清缴的难度加大。同时,新税法下累计预扣缴的计算规则对个人或企业无疑是个挑战,对拆分个人和企业应负税部分的专业税务知识要求较高。
 

另外,外籍个人来华派遣常见的派遣模式为税负平衡政策,由企业为其承担额外的境外税负,如果向其支付境外税负平衡结算,该金额属于员工的应税收入,税额由企业承担。对于年中更换雇主且均处于税负平衡政策模式下的受派外籍个人,前雇主支付的税负平衡结算导致的整体个税增加应该由谁来承担是个争议热点。
 

4. Highlights on the special comprehensive income items (annual bonus, remuneration for labour services, author's remuneration and royalties, etc.) in the annual reconciliation filing

Annual bonus reported separately from the regular salaries in the monthly IIT withholding can be incorporated into the comprehensive income for annual reconciliation filing purpose, but not vice versa. Therefore the IIT reporting method on annual bonus may have an impact on the individual’s annual IIT liability. It is suggested that employers conduct effective and timely communications with employees on this matter before withholding IIT on the annual bonus, so as to avoid the situation that employees fail to understand the IIT impact or miss the opportunity of proper planning, which may eventually require (the entity’s assistance in) the IIT adjustment during the annual reconciliation period.
 

For individuals who receive net income from labour services, author’s remuneration and royalties, the tax rates applicable for provisional IIT withholding purpose may not be the same as the final marginal rate for annual reconciliation filing purpose. The individual should combine the above mentioned income with his/her employment income and apply the annualised tax table when performing the annual reconciliation filing to avoid non-compliance exposures. It is suggested that the withholding agents well communicate with employees on such requirements, as well as the potential tax impact.
 

4. 年度汇算清缴中,特殊的综合所得项目(如年终奖金、劳务报酬、稿酬、特许权使用费)的注意事项

年终奖金月度扣缴环节时单独计税的,可以并入综合所得计税,反之不行。奖金计税方式的选择会影响年度的税款计算结果。建议企业在扣缴环节前做好员工沟通,以免员工未能理解其个税的影响,错过选择、筹划的机会,并导致后续可能需要(公司协助)通过年度汇算清缴来调整。
 

对于取得税后劳务报酬、稿酬、特许权使用费等收入的个人,由于支付方在预扣缴时适用的税率与年度汇算清缴税率可能会有所不同,个人需要将这些收入项目与其(同属于综合所得的)工资薪金项目合并,适用统一的年化税率表,以完成年度汇算清缴,否则个人会有应报未报的不合规情形。建议扣缴义务人与员工做好沟通,使其了解此种情形下年度汇算清缴的要求和潜在的税负影响”。

BT 202009 TAX 035. Potential exposures in relation to taxpayer’s appeal

If the taxpayer disagrees with the IIT withholding filing performed by the entity, he/she may appeal to the tax authority on the APP or via 12366 tax hotline, and the tax authority will then clarify and verify related issues with the entity. According to our observation, some entities have detected individual cases with under-withheld or over-withheld IIT during their communications with the in-charge tax authority. They may then be required to perform correction filings for all of their employees. In order to mitigate the exposure of full-scale tax inspections, entities are suggested to perform regular IIT compliance review, thorough employee communications on remuneration policies, and, when it happens, pro-actively cooperate with tax authorities to deal with the appeals.
 

5. 个人申诉可能引发的税务关注

企业预扣缴的个税与个人的理解不一致,个人可以通过手机APP的申诉功能或者税务热线12366申诉的方式将问题反馈给税务机关,由税务机关与企业澄清核实。我们观察到有些企业在与主管税务机关沟通的过程中,发现了未足额扣缴或多扣缴税款的情况,企业可能需要进行全员更正申报。企业需要考虑定期进行自身个税合规性审阅,就薪酬政策与员工进行良好沟通,并积极配合税务机关进行申诉应对,避免引发被进一步整体税务检查的风险。
 

6. How to choose effective channels for reconciliation filing

Various channels such as e-tax bureau and the official APP are available for taxpayers to perform the online annual reconciliation filing efficiently and conveniently. However, it is a bit more complicated for foreigners. For example, foreigners may need to do it on-site, authorise the withholding agent or entrust professional tax service agencies to handle it on behalf. It is suggested that entities deliver adequate and clear messages and provide necessary training to their foreign employees, or assist them to complete the annual reconciliation filing on time (e.g. help them obtain the registration code on-site to log in the APP) to avoid late payment interest or adverse impact on their personal credit records caused by the non-compliance in this regard.
 

6.如何选择有效的汇算申报途径

为方便纳税人进行年度汇算清缴,纳税人可以通过网上税务局、手机个人所得税APP等在线办税渠道高效、快捷地办理年度汇算清缴。而对于外籍人员则可能有一定的复杂性,比如需要(亲自)在税务机关现场办理、授权扣缴义务人代为办理、委托涉税专业服务机构协助等。建议企业与外籍员工做好充分沟通、培训,或协助其按期完成年度汇算(比如:提前在税务机关柜面申请获得外籍人员登入APP注册码),以免产生滞纳金或对其征信产生不良影响。
 

7. Considerations to IIT payment or refund claim

The tax authority offers diversified channels for the taxpayer to settle IIT shortfall upon the annual reconciliation filing. It is suggested to confirm the supported ways of payment with the in-charge tax authority. Currently, tax refund can only be directly deposited into the Type I bank account of the individual taxpayer. Many taxpayers experienced failure to receive the refund due to issues such as cancelled or reported lost bank cards, mismatch of the name of the account holder, etc., and a better preparation may be made ahead in the future. One of the remaining challenges is to obtain tax refund for foreign individuals who already left China for good. If the IIT is indeed borne by the entity, the loss of tax refund due to the cancellation of bank cards by the leaving foreign employees means an adverse financial impact to the local employing entity, and such issue should deserve careful consideration and arrangements.
 

7. 补税和退税注意事项

针对年度申报需要补税的情况,税务机关提供了多种补税的支付方式便于纳税人选择。建议与主管税务机关确认其所支持的支付方式。退税目前只能退回到纳税人本人的一类卡银行账户。退税过程中,由于银行卡注销、挂失、个人名字不匹配等原因,无法成功退税,是许多企业从首次汇算清缴中总结出的难点之一,未来可酌情提前做好筹划。尤其对于已经离开中国的外籍个人,这种情况下如何退税往往是一个挑战。对于个税由企业负担的情况,则会因个人银行卡已注销无法收到退税,导致企业的财务损失。公司或纳税个人应引起重视。

BT 202009 TAX 06The takeaway

According to our observation, many entities are continuing their efforts to handle related matters beyond 30 June 2020, the official ending date for 2019 annual reconciliation filing:
 

Some annual reconciliation filings are still pending due to force majeure (such as the COVID-19 epidemic) or other special reasons. In such cases, correction filing or supplementary filing should be performed as soon as possible in accordance with the IIT Law and regulations.
 

Entities and taxpayers should further improve the retention and management of supporting information and documents related to reported income and deductions, etc. for future verification.
 

Tax authorities may conduct random checks and inspections post annual reconciliation filing as provided by the relevant provisions of the IIT Law. Entities and individuals are recommended to handle such requests cooperatively and with understanding.
 

注意要点

2019年度的汇算清缴官方截止日期6月30日已过,但根据我们的观察,许多企业仍在继续相关工作:
 

由于不可抗力(如此次疫情)等原因,年度汇算清缴尚未完成。诸如此类未尽事宜,企业仍应尽快依法办理更正或补充申报。
 

已完成汇算清缴的情况下,企业针对收入、扣除等相关信息资料进一步完善其留存管理,以备未来的核查。
 

需要特别提醒的是,根据个人所得税法的相关规定,税务机关会在年度汇算清缴结束后开展随机抽查。届时也需要各企业和纳税个人的理解和配合。
 

In addition, entities should perform a timely review on the entire process of the first annual reconciliation filing as well as the existing monthly IIT withholding and other related arrangements, so as to identify and explore future improvement and modifications. Entities and individuals may consider seeking professional assistance in case of complex situations.
 

此外,各企业应及时回顾、总结其针对税改后第一次年度汇算清缴所做的各项工作,梳理当前的月度预扣预缴及其它相关安排,以探寻未来可以改进、改变的工作步骤。在面对复杂的情况时,建议寻求专业机构的帮助。

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