How does the prepayment of individual income tax work for taxpayers and withholding agents in China?

On July 28, 2020, the State Taxation Administration (STA) rolled out the Announcement on Adjusting Methods of Prepayment of Individual Income Tax for Some Taxpayers (STA Announcement [2020] No.13), which came into effect July 1. The Announcement has clarified the methods companies can use to calculate prepaid individual income tax (IIT) for fresh graduates and interns.

Actually, taxpayers may decide whether or not to comply with the conditions set forth in this announcement according to their own circumstances.

Those who meet the conditions should make a statement to the withholding agent in time and provide relevant supporting materials or letter of commitment truthfully – fresh graduates can show their graduation card or dispatch card as proof; interns may present their student ID card; taxpayers who receive income from wages or salaries for the first time in a tax year may provide a letter of commitment if they are not able to provide other supporting information.

After the withholding agent receives the relevant supporting materials or the letter of commitment, it can withhold and prepay the IIT for the taxpayer according to the methods stipulated in this announcement.

At the same time, the taxpayer should be responsible for the authenticity, accuracy, and completeness of the supporting materials and the letter of commitment provided to the withholding agent. The taxpayer and the withholding agent should also retain the original or copy of the relevant supporting materials and the letter of commitment for any future inspection.

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