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Q: What are the consequences for late payment of income tax?

Under the Law of the PRC for the Administration of tax levying (amended in June 2013) and the Measures for the Administration of Tax Registration (effective from February 2004), the taxpayer should register with the local tax authorities within 30 days of receiving its business license.

 

The payment of enterprise income tax on a monthly or quarterly basis should be determined by the taxation authority in accordance with actual situation and have the actual income tax amount settled within five months of the tax year ending. A late payment fine of 0.05% of the outstanding amount per day may be added to the taxpayer’s balance in addition to the back taxes owed. The clock will start ticking for the fine from the day the taxes were due.

• 1.How would the PRC tax authorities secure the payment of income tax?

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  If a taxpayer fails to pay its tax on time, they should be given a deadline for squaring it up with the tax authorities. As an enterprise engaged in production, if the taxpayer fails to make the payment by the specified deadline, the tax authority may (subject to the approval by the head of a tax bureau at county level or above):

   

  • Order the taxpayer’s bank to withhold from the taxpayer’s accounts the amount due plus any surcharge for overdue payment;

   

  or

   

  • Seize and sell other assets belonging to the taxpayer equivalent to the value of the amount due plus any surcharge for overdue payment.

   

  In addition, under Article 63 of the Tax Collection Law, the tax authorities can possibly impose a fine of up to five times the unpaid or underpaid amount.

• 2.Who is responsible for the penalty an expatriate employee incurs for late payment of income tax?

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  Normally, the FIE would be the withholding agent of the expatriate employee’s tax. This means it has the obligation to withhold and pay the income tax directly from the expatriate employee’s salary within the first fifteen days of each month. As the withholding agent, the FIE is liable if the tax has not been withheld or collected and would thus be lumbered with the late payment fine or other fines imposed. On the other hand, if the expatriate employee’s salary was paid by the parent company in Hong Kong, the expatriate employee would himself by responsible for the payment of tax on his salary. Either way, PRC tax authorities will go for the easy target when chasing the expatriate employee’s tax payment, which normally is the FIE, as they have a fixed presence and assets in China.

   

  How the FIE is going to retrieve the tax payments from the expatriate employee is of no concern to the Chinese tax authorities!

• 3.Is it possible to obtain an extension for payment of income tax?

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  The expatriate employee is under an obligation to file a tax return and submit relevant tax information with the tax authorities. Alternatively, the FIE, as the withholding agent, is obliged to submit a report and pay the withheld taxes within the specified period. The tax authority may grant an extension to a taxpayer or withholding agent who is unable to file a tax return or report on time. An extension of tax payment may also be offered to a taxpayer with “special difficulty” in paying taxes. The extension can only last as long as three months.