China Monthly Tax Brief: August 2024

In this China Monthly Tax Brief for August 2024, we highlight significant taxation developments for businesses and individual taxpayers.

• STA introduced a new circular, providing measures to optimize the taxpayer relocation process, from initial reminders to post-relocation services.
• Qianhai released guidelines assisting companies in applying for preferential CIT policies in the Qianhai-Hong Kong Modern Service Industry Cooperation Zone.
• Guangdong implemented classified and hierarchical management and services for taxes and fees.
• Zhejiang formulated special guidelines for the compliance management of tax-related matters of enterprises.
• Shenzhen issued measures for the implementation of the preferential IIT policy for the Greater Bay Area.

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STA introduces new circular easing taxpayer relocation

On August 15, 2024, the State Taxation Administration (STA) issued a new circular, titled Circular on Further Facilitating Cross-Province Relocation of Taxpayers and Serving the Construction of a Unified National Market (hereinafter, the “new circular”) aimed at streamlining the process for relocation of taxpayers across China. The new circular introduces a series of measures designed to optimize the relocation process, from initial reminders to post-relocation services.

Set to take effect on September 1, 2024, the measures introduced in the new circular align with the STA’s broader goal of enhancing administrative efficiency and supporting the development of a unified national market.

Key measures introduced include proactive guidance and reminders before the relocation, faster and simpler relocation procedures, and improved post-relocation services.

The new measures introduced by the STA mark a significant advance in enhancing administrative efficiency. By streamlining the taxpayer relocation process, the STA aims to simplify procedural hurdles, ensuring that businesses can operate smoothly across different locations. For taxpayers, the process will be more predictable and manageable, minimizing disruptions during relocations.

For more information about the proposed measures, please read here.

Qianhai issues guidelines for businesses enjoying CIT incentives

The Qianhai Management Bureau in Shenzhen has issued the Guidelines for Industry Definition Services for Preferential Corporate Income Tax in Qianhai. The purpose of these guidelines is to assist companies in applying for preferential corporate income tax (CIT) policies in the Qianhai-Hong Kong Modern Service Industry Cooperation Zone.

The guidelines address the challenge faced by tax authorities in determining whether a Qianhai Cooperation Zone enterprise’s main business falls within the scope of the Catalog of Preferential Corporate Income Tax in Qianhai-Hong Kong Modern Service Industry Cooperation Zone (2021 Edition). To address this, the Qianhai Management Bureau is responsible for defining whether an enterprise’s main business qualifies for inclusion in the Preferential Catalog.

Application process

When tax authorities request clarification, enterprises must provide the necessary materials to the Qianhai Management Bureau within 10 working days. These materials include the “Information Collection Form for Industry Definition Services for Preferential Corporate Income Tax in Qianhai” and relevant documents. The Qianhai Management Bureau aims to provide its opinion to the tax authorities within 30 working days.

The Qianhai Management Bureau, in conjunction with tax authorities, classifies certain enterprises as “Category I Enterprises” based on requirements related to credit risk management, as well as referring to the enterprises’ tax credit ratings and social credit ratings. Additionally, it considers factors such as business operations, tax risks, and adverse monitoring.

For these Category I Enterprises, the Qianhai Management Bureau may facilitate convenience through methods such as material sampling or on-site verification, especially for high-quality enterprises.

The guidelines are effective from September 1, 2024, and their validity extends until December 31, 2026.

Guangdong implements classified and hierarchical management and services for taxes and fees

The Guangdong Provincial Taxation Bureau has implemented a system of tax classification and hierarchical management and services for taxes and fees. This initiative aims to enhance tax administration efficiency, provide convenient services, and improve the overall effectiveness of tax-related services in Guangdong Province.

Key measures include:

• Optimized tax administration approach: The traditional fixed relationship between tax administrators and taxpayers has been abolished. Instead, the new approach focuses on classification and hierarchical management based on specific tax matters. This involves using task lists and collaborative teamwork for tax administration.
• Enhanced interactive consultation services: Taxpayers can now access online responses through various channels, including the e-Tax Bureau website, the “Guangdong Taxation” WeChat official account, the Guangdong Provincial Taxation Bureau official website, the Yue Shui Tong WeChat mini program, and the e-Tax Bureau app. These services include 24/7 intelligent consultations as well as assistance from human agents during working hours. Taxpayers can receive guidance, document updates, assistance with transactions, and progress inquiries. Additionally, they can seek advice or file complaints by calling the “12366” hotline.
• Streamlined tax payment channels: The implementation of “non-contact” tax payment includes options such as the e-Tax Bureau website, the app, the individual e-Tax Bureau, and the WeChat mini program. Furthermore, offline channels are available at tax service halls where taxpayers can handle their transactions in person. This integration of online and offline services allows for seamless handling of tax-related matters and enables progress tracking

Zhejiang formulates special guidelines for the compliance management of tax-related matters of enterprises

The Zhejiang Provincial Taxation Bureau has issued the Special Guidelines for Compliance Management of Tax-Related Matters for Enterprises in Zhejiang Province (trial implementation). These guidelines emphasize the importance of tax compliance and provide specific recommendations for compliance management.

According to the Guidelines, enterprises are required to establish a robust system for managing tax-related compliance matters. This includes defining basic rules, specific procedures, and operational guidelines. The Guidelines also emphasize the need for an organizational structure and leadership mechanism for tax compliance management. Clear responsibilities are assigned to management levels, tax compliance lead departments, business units, and regulatory bodies.

Enterprises are suggested to implement processes for identifying, assessing, warning, conducting compliance reviews, responding to risks, rectifying issues, and holding individuals accountable. These steps ensure a closed-loop management of compliance risks.

The Guidelines also address factors that support compliance, such as improving internal financial control systems, having qualified technical personnel, enhancing information technology capabilities, and fostering a compliance-oriented corporate culture.

Specific compliance points and risk areas are highlighted for high-risk matters related to value-added tax (VAT), CIT, export tax refunds, individual income tax (IIT) calculations and declarations, and invoice management. Clear guidance helps enterprises better recognize and mitigate tax-related risks.

Based on tax credit evaluation results, tax authorities will adopt inclusive and prudent supervision for taxpayers with credit ratings of A or B. This includes direct assistance through favorable policies. For taxpayers with a credit rating of D, strict management and joint disciplinary measures will be enforced by tax authorities in collaboration with relevant departments.

In summary, the Guidelines provide a comprehensive framework for tax compliance management. It aims to enhance compliance levels, reduce tax risks, and promote sustainable development for businesses.

Key Compliance Points for Tax-Related Matters
Category	Compliance points	Non-compliance risks	Compliance recommendations
VAT calculation and declaration for general taxpayers	Determine the timing of taxable transactions and tax obligations, and calculate sales revenue and tax accurately. Calculate output tax and deductible input tax accurately based on the applicable tax method. Ensure truthful, complete, and timely VAT declarations.	Issuing false invoices. Improper deduction.	Complete declaration forms accurately according to applicable tax rates. Separate accounting for sales revenue to avoid improper exemptions and reductions. Establish an invoice usage registration system. Properly retain invoices and their stubs for 5 years.
Corporate Income Tax Calculation and Declaration	Pay attention to calculating taxable income and tax payable, and handle deduction items correctly. Calculate taxable income following tax laws, not solely relying on accounting methods. Accurately collect current income and expense data based on the accrual principle. Quarterly prepayments and annual settlement of income tax.	Incorrect recognition of income. Failure to account for costs, expenses, taxes, losses, and other expenditures as required. Not benefiting from tax incentives.	Follow relevant laws and regulations for accounting and calculation. Specify the scope and amount of pre-tax deduction items, calculate tax payable accurately.
Export Tax Refund Calculation and Declaration	Apply the corresponding tax basis for different types of exported goods. Declare refund rates consistent with the labor service refund rates in the library. Ensure consistency between the measurement units and product names on export customs declarations and VAT special invoices.	Incorrect offshore price in US dollars. Offshore price not reflecting actual value. Errors in commodity codes, refund rates, and tax rates.	Provide accurate declaration information. Investigate reasons for offshore price discrepancies. Verify refund rates and expand commodity codes in declarations. Timely and accurate submission of required information.
Withholding Individual Income Tax	Withholding agents must fulfill their obligations to deduct and collect taxes in accordance with the law. The taxpayer for individual income tax is the recipient of income, while the withholding agent is the paying entity or individual. Withholding agents must submit full-amount withholding declarations for all employees as required by national regulations. Withholding agents must remit payments to the treasury within the specified time and submit declaration forms.	Failure to submit full-amount withholding declarations as required. Failure to differentiate between taxable objects and income items for pre-withholding.	Create a compliance checklist for common business items related to withholding individual income tax.
Tax Declaration Procedures	Taxpayers must truthfully handle tax declarations according to laws, administrative regulations, or tax authority requirements. This includes submitting tax declaration forms, financial accounting statements, and other relevant tax documents. Withholding agents must truthfully submit reports on withholding and collection of taxes, along with other related information. 3. Taxpayers and withholding agents must pay or remit taxes within the statutory deadlines.	Failure to submit tax declarations, relevant documents, or payments within the statutory deadlines.	Refer to tax service guidelines published by the e-Tax Bureau and specific requirements from the competent tax authority.
Invoice Compliance Management	Issue, use, and acquire invoices according to regulations. Verify invoices on the national VAT invoice verification platform. Invoice issuance should follow deadlines, sequence, and column requirements. Paper invoices should bear the official invoice seal. Invoices should not be altered in terms of product names and amounts upon acquisition. Non-compliant invoices can be rejected. Properly store invoices in accordance with national regulations, retaining stubs of issued invoices for 5 years.	Acquiring non-compliant invoices: receiving fake invoices or accepting false invoices. Issuing false invoices. Transferring, lending, or introducing others to transfer invoices, invoice seals, and anti-counterfeit features.	Verify the credibility of the seller before transactions. Cross-check invoice information upon receipt. Regularly verify the authenticity and validity of invoices. Maintain relevant evidence for future reference.

Shenzhen issues measures for the implementation of the preferential IIT policy for the Greater Bay Area

On August 24, 2024, the Shenzhen Municipal Finance Bureau issued a public announcement, soliciting opinions on the Draft for Soliciting Opinions on the Implementation Measures for Personal Income Tax Preferential Policies and Financial Subsidies in the Guangdong-Hong Kong-Macao Greater Bay Area. The period for soliciting opinions is from August 13 to September 11, 2024, during which the public can submit feedback via email or postal mail. The purpose of this measure is to implement the national IIT preferential policies in the Greater Bay Area, alleviate the tax burden on overseas talents working in Shenzhen, and promote talent development.

Key points of the Measures include:

• Subsidy recipients: The policy applies to high-end and overseas talents in urgent demands working in Shenzhen who meet specific criteria. This includes permanent residents of Hong Kong and Macao, residents of Taiwan, foreign nationals, as well as individuals with long-term residency rights abroad (such as returning overseas students and overseas Chinese).
• Eligibility criteria: Applicants must work in Shenzhen and reside in the city for a cumulative total of 90 days or more within the tax year. They must also comply with relevant laws and regulations and maintain a good record of integrity.
• Subsidy calculation: For personal income tax paid by applicants, a subsidy will be granted for the portion of tax already paid that exceeds 15 percent of the taxable income. This subsidy effectively exempts them from paying IIT. The maximum subsidy amount per tax year does not exceed RMB 5 million (Approx. US$702,286).
• Application process: The financial subsidy is processed annually. Applicants must submit their applications within the specified timeframe, including relevant documents such as identification, employment certificates, and residence proof. The application process involves initial acceptance and review by the human resources departments in various districts of Shenzhen, followed by final verification by the Municipal Human Resources and Social Security Bureau.
• Supervision and management: Applicants and their employers must ensure the authenticity of application materials. Any fraudulent behavior will result in disqualification, recovery of previously granted subsidies, and potential legal consequences.
• Implementation period: The policy is effective from January 1, 2024, and applies to tax years from 2024 to 2027.

Through this policy, Shenzhen aims to create a more international and convenient environment for talent development, facilitating talent mobility and economic growth in the Guangdong-Hong Kong-Macao Greater Bay Area. As taxpayers, individuals should pay attention to the relevant personal income tax incentives, as they directly impact their tax burden and actual income. The announcement provides a channel for feedback, allowing taxpayers to raise any suggestions or inquiries through official channels.

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