Ms Flora Luo
Director of Global Expansion & Tax Advisory
Nexia TS Shanghaifloraluo@nexiats.com.cn
Dr Scott Heidecke
Nexia TS Shanghaiscott@nexiats.com.cn
In order to support the tax system reform goals of the Chinese State Council Standing Committee, the State Administration of Taxation (SAT) issued Announcement  No. 6 (Announcement 6), which took effect on April 1, 2021 and modifies regulations related to penalties for first-time violations of tax compliance rules. In accordance with the most current relevant laws and regulations, the announcement provides that no administrative penalties will be imposed for first-time tax violations, as long as the violations arise from matters listed in the announcement and the resulting harmful consequences are minor. Violations must also be self-corrected before the matter comes to the attention of tax authorities or corrected within the time limit requested by tax authorities.
The following list describes the matters for which Announcement 6 applies:
The provisions of Announcement 6 may benefit newly registered foreign-invested companies, especially where they have little to no experience with China’s tax compliance regulations and/or make use of accounting services provided by domestic companies that are not accustomed to handling foreign-invested company compliance activities. Foreign individuals working in China may also benefit, as China’s individual income tax rules and processes in some instances can be quite complicated or unclear with respect to tax filing deadlines.
While Announcement 6 brings welcome changes to China’s tax penalty practices, it remains to be seen how in-charge tax authorities will decide whether the consequences of qualifying non-compliance issues are minor. As with many tax rules, definitions of terms are often subject to individual interpretations by a given tax official. It is therefore strongly suggested that newly formed foreign-invested entities or foreign individuals working in China for the first time work with a knowledgeable tax agency to set up and/or manage tax compliance systems and practices.
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