As annual IIT declaration filing falls due this month – have you completed yours? - our company regularly assists clients in the completion of the relevant procedure.

Recently PHC Advisory professionals have successfully handled a highly representative individual income tax final settlement case for a foreign employee. After completing the declaration for the 2023 tax year, the employee had long missed the tax refund entitled to and, once the declarations were rectified, failed to receive the tax refund specified in the declaration. Through a special review of the employee's individual income tax declaration and bank account association, we uncovered some critical issues. These findings not only resolved the employee's refund problem but also provided valuable experience for other foreign employees and enterprises.

I. Problem Investigation and Solutions

1. Abnormal Bank Account Association Leading to Refund Failure

When processing tax refunds, accurate bank account association is the primary prerequisite for receiving the refund.

First, verifying name consistency is crucial. Foreign employees should first check whether the name of the bank account holder completely matches the registered information in the individual income tax declaration system. Common issues leading to refund failure include case mismatches in English names (e.g., "ZHANG SAN" vs. "Zhang San") or differences in name order. Even seemingly minor discrepancies can prevent the tax system from successfully associating the account.

Second, special binding requirements for specific banks cannot be overlooked. For foreign employees holding accounts with the Bank of China or China Construction Bank, even if the name information is completely consistent, it may be necessary visit the competent tax bureau for on-site mandatory binding due to system docking rules. In this procedure, please be sure to bring the following materials with you:

• Original passport;

• Photocopies of the front and back of the bank card;

• A bank-stamped statement containing the account holder's name, account number, and passport number (usually a bank statement or account opening certificate).

After completing the binding procedures at the competent tax authority's service hall, the tax refund for the annual final settlement can usually be received normally.

2. Omission of Final Settlement Declarations for Previous Years

After assisting the employee with the account association procedures, we further verified and discovered that the employee had missed the final settlement declarations for 2019 to 2021. After assisting the client with supplementary and integrative declarations, the employee successfully received a consistent amount in tax refunds per each year, totaling several thousand RMB. This case demonstrates that many foreign employees may miss out on entitled tax refunds due to unfamiliarity with Chinese tax regulations or information asymmetry. Supplementary declarations for previous years are a worthwhile endeavor to consider.

3. Weak Awareness of Filling in Special Additional Deductions

Generally, foreign employees have an insufficient understanding of the value of the "Individual Income Tax APP" for declarations and fail to fully fill in various special additional deductions according to their actual circumstances. These mainly include the following items:

• Children's education, continuing education, major medical expenses: These are common and often substantial deduction items.

• Housing rent (requires a rental contract), housing loan interest: For foreign employees with housing rentals or loans in China, these two items are important avenues for tax reduction.

• Support for the elderly: If the dependent is over 60 years old and meets relevant conditions, this deduction can also be claimed.

Among these, "housing rent" and "support for the elderly" have a higher applicability rate. These two items alone, for eligible taxpayers, could potentially reduce the tax burden by hundreds to thousands of RMB, directly increasing the refund amount. We strongly recommend that foreign employees actively understand and declare these deduction items.

II. Management Suggestions

Based on the experience gained from the above case, we offer the following management suggestions:

• Emphasize bank account information verification and advance binding: We recommend that foreign employees prioritize verifying bank account information before the annual final settlement and complete tax binding procedures in advance for Bank of China and China Construction Bank accounts to avoid delays in receiving refunds.

• Regularly review historical declaration records: Encourage employees to regularly organize and check their historical annual declaration records and promptly supplement any omitted final settlements to ensure they do not lose out on deserved tax refunds.

• Fully utilize the Individual Income Tax APP for special additional deductions: Strengthen guidance for foreign employees on using the Individual Income Tax APP to ensure they fully understand and lawfully fill in various special additional deductions, maximizing tax burden reduction.

Conclusion

Through full-process tax compliance management, not only can refund delays be effectively avoided, but tax incentives can also be maximized. Enterprises should strengthen individual income tax policy training and declaration guidance for foreign employees to help them better understand and fulfill their tax obligations, collectively building a compliant and efficient tax management system. PHC Advisory professionals can assist you in the verifying and executing the procedure, do not hesitate to contact us.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us atinfo@phcadvisory.com.  

PHC Advisory is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance. 

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The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way. 

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