tax-rates-menu-l5Tax RatesTax NewsTax Videos
tax rates
Tax Rates Home PageIRS Tax FormsTax Articles
 
 
 
 
 
 

Home > Tax News > July 2010

Go to Tax Rates Home Page

TAX NEWS - 2010

PRC Tax: Strengthened PRC Individual Income Tax administration on high-income individuals

Summary

The State Administration of Taxation (SAT) issued Circular Guoshuifa (2010) No. 54 (Circular 54) on May 31, 2022 concerning the People's Republic of China (PRC) Individual Income Tax (IIT) administration on high-income earners. The Circular was made publicly available around mid June 2010. Circular 54 has laid down tougher measures in strengthening and enhancing the reporting, collection and administration of the PRC Individual Income Tax on high-income individuals.


Key implications

The key implications of Circular 54 are as follows:

Implementing a full disclosure of sources of income by tax withholding agents - Circular 54 requires tax withholding agents to provide details on all different types of taxable income paid to individuals. With the stated view of improving the quality of reporting, in addition to employment income, Circular 54 requires withholding agents to disclose other types of income such as labor service income. Punitive measures will be taken for any failure of tax withholding agents to provide full details in accordance with The Administrative Law of the PRC on the Levying and Collection of Taxes.

Strengthening administration on self-declaration by individuals whose annual income exceeds RMB120,000 - To enhance the accuracy and completeness of information declared by individuals whose annual income exceeds RMB120,000 through the annual filing system, the State Administration of Taxation (SAT) has required the local tax bureaus to:

- Enhance information sharing with the local State Administration for Industry and Commerce, Real Estate Administration Bureau, Social Security Bureau and Securities brokerages, etc. on sources of incomes derived by these individuals.

- Better identify the sources and structuring of income of high income earners.

- For taxes that have not been withheld or insufficiently withheld, taxpayers are required to make up the difference in accordance with The Administrative Law of the PRC on the Levying and Collection of Taxes.

Encouraging the setting up of the Individual Income Tax information management system for high-income individuals - For the locations that have not fully implemented PRC Individual Income Tax Information Management System, tax bureaus at provincial levels are required to ensure that such system would be set up as soon as possible. For the locations that have already implemented the Individual Income Tax Information Management System, all detailed Individual Income Tax information is required to be provided to the State Administration of Taxation (SAT) for consolidation as soon as possible.

Enforcing the administrative management on key categories of income derived by high-income individuals - Circular 54 requires the local tax bureaus to strengthen administrative efforts with a focus on the following key categories of income:

- Income from transfer of properties - These include sales of China listed restricted stock, transfer of shares of unlisted companies, transfer of real estate properties as well as auction income. The State Administration of Taxation (SAT) requires local tax authorities to enhance communication and information sharing with all involved parties and government agencies to administer and control collection of Individual Income Tax on income derived from the above transfer of properties.

- Income from interests, dividends and equity investments - Local tax authorities are required to investigate and examine accounting books, financial statements and assets of enterprises to verify the interests, dividends and equity investments received by high-income individuals and then levy related Individual Income Tax.

- Income from sizeable sole proprietorship, partnerships and industrial and commercial households - To strengthen PRC Individual Income Tax collection, sole proprietorship, partnerships and industrial and commercial households are required to maintain proper accounting books and records for verification by the local tax bureaus. Prior to business de-registrations, investors of enterprises are required to settle all outstanding Individual Income Tax during the tax clearance process.

- Enhancement on administration of labour service income and cross referencing on employment income - Local tax bureaus are required to work closely with the relevant authorities to obtain information on personal service income payment to ensure that the PRC Individual Income Tax is withheld properly, particularly on individuals who are engaged in acting, lecturing, consulting, financial planning and full / part-time training etc. In addition, for highincome industries, the total salary expenses claimed in the corporate income tax returns would be cross referenced against those being reported for Individual Income Tax purposes in PRC Individual Income Tax filings.

- Strengthening tax collection on income derived by expatriates - Local tax bureaus are required to work closely with immigration and public security bureaus to obtain information on the timing of arrival into and departure from the PRC of the expatriates to ensure that Individual Income Tax are paid prior to their departure. In addition, the local tax bureaus are required to proactively collaborate with banks and the State Administration of Foreign Exchange (SAFE) to tighten up remittance. Local tax bureaus are also required to set up proper personal records for expatriates, gathering benchmark information on remuneration standards with particular focus on enhancing the administration of their PRC sourced income which is paid offshore.

Circular 54 has clearly signaled the China tax authority's continuing efforts to strengthen the reporting, administration and tax collection on high-income individuals which include both expatriates and high earning PRC nationals.

Whilst previous Circulars tend to focus on salaries, wages and bonuses, stock options and related equity based incentives, Circular 54 has extended the focus to a much wider range of other types of income, with income from transfer of properties (including capital gains derived from sale of shares of listed and unlisted companies) , sale of real estate properties, auction income, income from interest, dividends and equity investment being thrust to the fore.

Circular 54 has highlighted the continuing trend of the PRC tax authorities towards compliance and enforcement. It is important that the companies perform review of their Individual Income Tax position to ensure compliance.
tax rates

© 2009-2010 TaxRates.cc  2009 - 2010 Tax Rate Guide and Tax Help Website

Disclaimer  |  Site Map  | Contact  |  Privacy Policy