[Taxes] Personnal taxes calculation update

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In Brief

December 4, 2020, China's State Tax Administration (STA) released a Statement about Simplifying and Optimizing Individual Income Tax Prepayments for Some Taxpayers (STA Statement [2020] No. 19), aimed to reduce the tax return burden of some taxpayers and their withholding representatives.


Started on the 1st January 2021 the notice allow taxes payers with cumulated salaries under RMB 60 000 to use a direct RMB 60 000 quick deduction for the year to come.


https://mp.weixin.qq.com/s/P5HE1Pqs6pZYR5v9UUOvyg


This concern only employees (foreign or local) whose wages (salaries + bonus and other related labor borne revenue) were less than 60 000 yuan in 2020 or those who didn't have wages in 2020.

 

Employee and withholding agent of employees who will report a regular salaryover 12 months of less or equal to 5000 per month will not be impacted.


This regulation does not impact the total final amount of taxes.


The employee needs to have worked with the same employer continuously for the last year and continue to work for the same employer.


To resume: Only employee and withholding agent who will declare at least one salary of more than RMB 5000 per month for a total of less than RMB 60.000 per year are concerned.


It just changes the way to calculate and withhold taxes and simplify taxation for this category of employees.


In practice

The goal is to optimize the methods of withholding and prepayment and avoid the trouble of "prepay first and then refund tax".

 

From January 2021, when the withholding agent prepares and withholds the IIT of eligible workers, the accumulative deduction of expenses shall be calculated and deducted directly from January based on the annual amount of RMB 60,000.

 

If/when the annual amount exceeds RMB 60,000 withholding agent will report taxes, and no more quick reduction of RMB 5000 will be applied and taxes will be calculated and deducted on the first 1 RMB.



Isn't it the same as before

For most readers, the new regulation won’t have any impact, but in some cases, the new regulation is an improvement for lower-income workers.

 

Let's take the case of Mr. LI working in a winter ski station. He is very busy in winter but his job is mostly maintenance of the premises in summer.


His annual salary of RMB 60 000 is payed according to the table under:


January    

Febrauy  

March     

April           

May           

June        

July              

August         

September   

October        

November    

December     


10 000

10 000

4 500

3 000

3 000

3 000

3 000

3 000

3 000

3 000

4 500

10 000



Taxeson salary are according to the formula:

 ( Salary - 5 000 ) * taxes bracket

Month

January    

Febrauy  

March     

April           

May           

June        

July              

August         

September   

October        

November    

December     


Taxes

150

150

0

0

0

0

0

0

0

0

0

150


Total annual taxes for Mr. Li are RMB 450 for an annual income of RMB 60 000.

 

But regulations allow Mr. Li not to pay taxes because he has a revenue of less than RMB 60 000. So he will have to claim back his overpaid taxes at the tax bureau or through the mini-app.

 

While another worker with an annual wage of RMB 5000 per month regular won’t have to go through that procedure!


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