Preparing for China’s Annual CIT Filing: Guidelines for Non-Resident Enterprises
Non-resident companies with establishments and premises in China are required to submit the annual China corporate income tax filing for 2022 by the end of May 2023. As the deadline approaches, we provide an overview of the requirements and procedures for filing by using the guidelines from the city of Shenzhen as an example.
The annual corporate income tax (CIT) reconciliation for the 2022 tax year is due at the end of May 2023. The Annual CIT reconciliation, also called annual CIT filing, is a procedure that the State Tax Administration (STA) requires all relevant taxpayers to conduct within five months of the end of the tax year (from January 1 to December 31) to determine if all tax liabilities have been met and whether the company needs to pay supplementary tax or apply for tax reimbursement.
In the process of conducting the annual CIT filing, companies, both resident and non-resident, need to complete a range of procedures to determine their taxable income and tax payable. This includes preparing pre-tax deduction vouchers, ensuring compliance with audit and reporting requirements, dealing with book-tax differences, and applying any applicable preferential CIT policies.
In advance of the 2023 deadline, local governments across China have been issuing reminders to companies to complete the annual CIT filing procedures, as well as guidelines for the specific requirements of resident and non-resident companies.
One such document is a circular issued by the Shenzhen Municipal Tax Bureau of the State Tax Administration (the “Shenzhen Tax Bureau”), which outlines the requirements for the annual CIT filing for non-resident enterprises for 2022. This circular acts as a guide for non-resident enterprises to settle and pay the 2022 CIT, providing useful information on which companies are considered non-resident enterprises, the different settlement and payment procedures, and the required materials, among others.
The Circular is based on the 2009 Administrative Measures for Final Settlement and Payment of Non-resident Corporate Income Tax [Guo Shui Fa  No. 6], which was revised in 2018, which also forms as the basis of other local guidelines on annual CIT filing for non-resident enterprises.
In this article, we take Shenzhen as an example of the annual CIT filing requirements for non-resident enterprises, summarizing the applicability, procedures, and policies for non-resident enterprises to complete the annual CIT filing.
It is, however, important to note that requirements may vary from region to region, and companies are advised to consult the guidelines of their local tax jurisdiction.
What is the CIT rate for non-resident enterprises?
The standard CIT rate in China is 25 percent, which is applicable both to resident and non-resident enterprises with income-generating establishments in China.
A reduced CIT rate of 20 percent (which has temporarily been further reduced to 10 percent) is applied to China-sourced income not related to a non-resident enterprise’s establishments in China, or China income derived by non-resident enterprises without establishments in China.
For more information on CIT in China, please refer to the section on CIT in our Doing Business in China Guide.
Applicability of annual CIT filing of non-resident enterprises
What kind of non-resident enterprises need to complete the annual CIT filing?
According to the circular, non-resident enterprises that have been established under foreign (or regional) laws and whose actual management institutions are not located in China but have establishments or premises in Shenzhen, should participate in the settlement and payment of income tax, regardless of whether they have recorded profits or losses.
Which non-resident enterprises are exempt from the annual CIT filing?
Enterprises that meet one of the following conditions do not need to participate in the annual settlement and payment of CIT:
- Temporary contractors for engineering projects and labor services that have been in operation for less than one year in China, have terminated business activities in the middle of the year, and have already settled their taxes;
- Companies that have already completed the deregistration process during the settlement period; and
- Other non-resident enterprises that have been approved by the competent tax authority to not participate in the annual settlement and payment of income tax.
Annual CIT filing and payment procedures for non-resident enterprises
When must the CIT be settled and paid?
The non-resident enterprise taxpayers are required to submit the annual income tax return to the tax authorities within five months of the end of the year and settle the tax payable or refundable.
If the company terminates its business activities in the middle of the year, it must settle and pay the CIT for the current period within 60 days from the actual date of termination of business activities.
How can companies complete the annual CIT filing?
There are two methods for non-resident enterprises to settle and make the payment declaration for the 2022 CIT: making an online declaration or on-site declaration at the tax bureau.
Companies can choose to fill in and submit the applicable declaration form through the e-tax website of the Shenzhen Tax Bureau within the prescribed time limit for settlement and payment, and settle the tax payable online.
If the company cannot apply for the settlement online, an employee can instead bring the relevant materials for settlement and payment to the tax service hall directly. However, the circular recommends that companies handle settlement and payment through the online channel.
In addition, if a company discovers that there is an error in the annual CIT filing for non-resident enterprises during the settlement and payment period, it can make corrections either online or at the tax service hall in accordance with the prescribed procedures.
What materials are required for the annual CIT filing?
The main form that must be completed and submitted is the Annual Tax Return Form for Non-Resident Enterprise Income Tax of the People’s Republic of China (2019 version) (the “Annual Non-Resident CIT Form”).
This form comes with a range of attachments that need to be filled and submitted where applicable. They include:
- Schedule of Tax-Adjusted Items
- Schedule of Enterprise Income Tax Makeup and Losses List
- Annual Schedule of Expenses for Exploration and Development of Foreign Cooperative Oil Exploitation Enterprises
- Distribution Form for Consolidated Payment of Income Tax by Non-Resident Enterprises and Establishments
- Approved Calculation Schedule for Non-Resident Enterprise Institutions and Establishments
- Report Form of Withholding Enterprise Income Tax of the People’s Republic of China (2019 Edition)
These forms can all be found and downloaded (along with instructions for filling them in) from the State Tax Administration website.
When handling the annual CIT filing for non-resident enterprises, the company should calculate the taxable income and tax payable in accordance with China’s relevant tax laws, such as the Corporate Income Tax Law of the People’s Republic of China, and the accompanying implementation regulations.
The annual CIT filing form, as well as all relevant attachments, should be filled in truthfully and accurately. These must then be submitted in a complete and timely manner, and the company must assume legal responsibility for the truthfulness, accuracy, and completeness of the materials.
Materials required for online settlement
For the completion of the 2022 annual CIT filing of non-resident companies, a data retention and backup method will be implemented. This means the company should retain relevant final settlement and payment materials themselves and only submit them when requested by the competent tax authority.
Companies that plan on using the online declaration method should save the following relevant materials, as stipulated in relevant laws and regulations:
- The Annual Non-Resident CIT Form and the required attachments;
- Annual financial accounting report;
- The Annual Report on Related Business Transactions of Enterprises in the People’s Republic of China, where transactions involving related parties are involved;
- Relevant materials for reference items;
- Information on asset loss;
- Basic information and financial accounting system arrangements of each institution and place, in the case that non-resident enterprises have set up institutions and establishments in Shenzhen and need to collect and pay taxes;
- The agency contract signed by both parties and the report issued by the intermediary agency, including the tax adjustment items, reasons, basis, calculation process, adjustment amount, and so on, if an intermediary agency has been entrusted to act as an agent for tax declaration; and
- Other materials that need to be submitted during the settlement and payment period according to the tax policy (please refer to the tax guide for details).
Materials required for offline settlement
If a company chooses to settle the annual CIT filing directly at the tax service hall, then the person in charge must produce items 1 to 3 in the list in the previous section.
Other considerations for the annual CIT filing for non-resident enterprises
Handling of tax violations
The circular clearly states that if a company fails to settle and pay the required tax within the prescribed time, or fails to retain or submit the materials listed above, then it will be handled in accordance with the Tax Collection and Management Law of the People’s Republic of China (the “Tax Collection and Management Law”), as well as any accompanying implementation regulations.
Handling of preferential policies
If a company is eligible for a preferential CIT policy that could require the retention of relevant materials, it should determine whether it meets the conditions to enjoy the preferential policy, fill out the application form, and keep a hold of the relevant materials.
For more information on the preferential CIT policies available in Shenzhen, see our article on the extension of the 15 percent CIT policy for eligible companies in Qianhai.
Reduced CIT policies are also available for companies in certain sectors in several other areas of China, including the Hengqin Cooperation Zone in Zhuhai and the Lingang New Area in Shanghai. It is also applicable to certain encouraged sectors in other areas of China.
The annual CIT filing in China can be fairly complicated, particularly for companies that have multiple operations spread across a city or region. It is therefore easy to make mistakes and end up inadvertently violating China’s tax laws, which could result in penalties.
To mitigate risks and ensure a smooth tax settlement procedure, it is advisable to contract tax professionals in China for advice and assistance with tax filing procedures.
If you are looking for help or advice on filing taxes for your China business, don’t hesitate to contact our tax professionals by emailing firstname.lastname@example.org.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com.
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