Laws of the People's Republic of China

the State Administration of Taxation

Circular of the State Administration of Taxation on Intensifying the Administration of Collection of Individual Income Tax of Foreign Employees

Guo Shui Fa No. 27 [2004]

March 5, 2004

aus of state taxation and those of local taxation of all provinces, autonomous regions, municipalities directly under the Central Government and cities directly under state planning, and all the entities of the Administration,

With the economic globalization and the continuous advance of the opening to the outside world, more and more foreign employees work in our country or engage in business activities. Due to the great mobility of foreign employees, the individual income tax policies involved become more complicated, which has brought about some difficulties for foreign employees to make accurate judgment on their tax paying obligations and for taxation authorities to supervise tax resources. And there frequently occurs the under-declaration and underpayment of individual income tax. With a view to intensifying the administration on individual income tax of foreign employees and on tax payment services, and further improving the quality and efficiency of the administration of tax collection, the relevant issues are hereby notified as follows:

I.

Enhanrstanding and perfecting administration mechanismThe individual income tax of foreign employees is strongly policy-related, which relates to not only the issues on the determination and division of the international taxation jurisdiction, but also the specific policies and procedures for computing the taxable income and the tax payable and is the important content of international taxation administration. Therefore, it has to do with not only the guarantee of the state revenue, but also the maintenance of tax sovereignty of the state to intensify the administration of the collection of individual income tax of foreign employees and to make them to properly perform their obligations of tax payment. All the localities shall sharpen the awareness of the importance of the administration work for collecting individual income tax of foreign employees, set up and perfect the system of post and responsibility for the international taxation administration, enrich professionals, and improve and regulate the procedures for administration, so as to provide safeguards for the administration of individual income tax of foreign employees.

II.

Standardizing the law enforcement to ensure the fulfillment of the policiesThe policies applicable to the individual income tax of foreign employees include the tax laws and regulations of China, tax agreements signed between the Chinese government and the foreign governments. All the localities shall strengthen the self-capability training, improve the vocational skills of tax staff members and accurately grasp the relevant policies. The law enforcement acts shall be further standardized to make strict the tax laws and disciplines and rectify the procedures for the administration of tax collection so as to ensure the fulfillment of the policies concerning the individual income tax of foreign employees and provide an open, fair and just taxation environments for foreign employees.

III.

Improving services to facilitate foreign employees to pay taxes according to law It is the function and duty of tax authorities to intensify the administration of collection of individual income tax of foreign employees and to provide high-quality tax payment services. All the localities shall take effective measures to earnestly solve difficulties and problems encountered by foreign employees in their declaration of tax payment. Tax policies shall be propagated through internet, newspapers and periodicals, televisions, broadcast and other media. Tutorships shall be made especially to foreign employees and their withholding agents, and smooth consultation channels shall be provided for them, so as to help them understand the relevant tax laws and regulations of China, be familiar with the procedures for the administration of tax collection and improve their observance of tax laws. The inter-department cooperation shall be strengthened, and smooth information communication channels shall be established by strengthening the cooperation between the departments of entry and exit administration, industry and commerce, customs, foreign trade and economy, education, culture, physical education, science and technology and etc., as so to timely grasp the information on employment and flow of foreign employees and to lay a good foundation for supervision of tax resources.

IV.

Intensifying the administration of tax collection and doing a good job for recovering the overdue taxesAll the localities shall carry out a recovery of overdue taxes before the end of 2004, which is mainly designed to encourage taxpayers to make self-examination and corrections. And the specific requirements are as follows:

1.

Where a foreign employee or a withholding agent declares the unpaid tax of the previous years on his/its own initiative before the end of June 2004, he/it shall, in addition to making up the unpaid taxes according to law, pay a surcharge for overdue payment at 0.5 percent of the overdue tax for each day in arrears; but he/it may not be punished;

2.

Where a foreign employee still fails to make up the taxes on his/her own initiative within the above-mentioned time limit, if he/she has disguised the relevant facts, or falsely report or failed to report the taxable income for a long time, he/she shall be ordered to pay the overdue taxes and a surcharge for overdue payment according to the provisions of the Law of the People's Republic of China on the Administration of Tax Collection, and shall be imposed a fine as well.

V.

This Circular shall be referred to in the administration of collection of individual income tax of compatriots from Hong Kong, Macao, Taiwan and oversea Chinese.