Employer’s obligations in employees’ special additional deductions for individual income tax

China

Under the PRC Individual Income Tax Law, the employer is the withholding agent for individual income tax for the remuneration of the employees which have been paid by the employer. According to the PRC Individual Income Tax Law which was amended and became effective on 1 January 2019, some livelihood expenditure of the employees on education, medical treatment, housing or support for elders can be deducted from the income of the employees for individual income tax. As the withholding agent, the employer is required by the law to take the following responsibilities in the deduction:

  1. An employee can either choose to declare deductions by himself when making an annual final settlement declaration of individual income tax at the competent tax authority or ask the employer to make preliminary deduction from salaries every month. If the employee asks the employer to make preliminary deduction of the expenses on children’s education, continuing education, housing loan interests/rent or supports for elders, the employer shall not refuse, but must make preliminary deduction of relevant expenses according to the law for the employee on the monthly basis starting from the month when the employer pays the employee the remuneration until the month when the employer stops paying the employee the remuneration if the employee leaves. 
  2. For purpose of preliminary deduction, the employer shall ask the employees to provide relevant personal information by filling in a standard Information Sheet of Special Additional Deductions for Individual Income Tax (“Information Sheet”) or get relevant information of the employees from a remote tax APP developed by the State Administration of Taxation in the first month when the employee is on-board. The employer shall ensure that the information provided by the employees in the Information Sheet is complete.
  3. The employer making preliminary deduction for the employees shall confirm with the employees about the deductions which the employees are entitled to in details in December of each year and provide such information to the competent tax authority in the following month.
  4. The employer making preliminary deduction for the employees is obliged to keep the Information Sheets of the employees for five years following the year when the employer started to make preliminary deduction for the employees.
  5. The employer making preliminary deduction for the employees shall not refuse to accept the personal information provided by the employees for the preliminary deduction and is obliged to keep the personal information confidential.

Although it is the employees who are liable for the authenticity, accuracy and completeness of their personal information for the deduction, however, the employer still has some obligations in the process of conducting the preliminary deduction for the employees. This increases not only the work load but also the liabilities of the employer. To reduce the potential legal risks, the employer may wish to set up relevant operating procedures and to clarify with the employees about their choices and responsibilities in this regard.