Guide to Annual CIT Reconciliation 2023

The deadline for the 2022 tax year’s corporate income tax (CIT) reconciliation is at the conclusion of May 2023. The process, also known as annual CIT filing, is compulsory for all eligible taxpayers and must be completed within five months of the end of the tax year, which runs from January 1 to December 31. Its purpose is to assess whether all tax liabilities have been fulfilled and to determine whether the company is required to pay additional taxes or request a refund.

Are you a non-resident enterprise?

A non-resident enterprise refers to enterprises lawfully incorporated in accordance with the laws of foreign countries (regions) with no actual management organization China, but having an office or premises established in China, or having income derived from China although it does not have an office or premises in China.

According to the Administrative Measures for Final Settlement and Payment of Non-resident Corporate Income Tax [Guo Shui Fa [2009] No. 6], revised in 2018, non-resident enterprises that have been established under foreign (or regional) laws and whose actual management institutions are not located in China but have establishments or premises in China, should participate in the settlement and payment of income tax, regardless of whether they have recorded profits or losses. 

What would happen if you fail to reconciliate your CIT?

As per the circular, if a company does not pay the necessary taxes within the designated period or does not provide and submit the required documentation, it will be dealt with according to the regulations of the Tax Collection and Management Law of China and its associated implementation rules.

What are some general steps of Annual CIT?

1. Determine the applicable tax year: The tax year for CIT in China is the calendar year (January 1 to December 31). Determine which tax year you need to reconcile.

2. Prepare financial statements: Prepare your company’s financial statements for the applicable tax year, including income statements, balance sheets, and cash flow statements.

3. Calculate taxable income: Calculate your company’s taxable income for the applicable tax year. This includes deducting expenses and allowances from your revenue to arrive at your taxable income.

4. Calculate CIT liability: Calculate your company’s CIT liability based on your taxable income and the applicable tax rate. The standard CIT rate in China is 25%, but there may be lower rates available for certain types of companies or industries.

5. Compare to CIT paid: Compare the CIT liability you calculated in step 4 to the CIT paid throughout the year. This includes monthly or quarterly CIT payments, as well as any prepayments or provisional CIT payments.

6. Reconcile any differences: If the CIT liability you calculated in step 4 is higher than the CIT paid throughout the year, you will need to pay the difference. If the CIT liability is lower than the CIT paid, you may be eligible for a tax refund.

7. Submit CIT reconciliation form: Submit the CIT reconciliation form to the tax authorities before the deadline. The deadline for CIT reconciliation in China is May 31st of the following year.

8. Keep records: Keep detailed records of your CIT reconciliation and supporting documents in case of any future tax audits.

What materials are required for the annual CIT filing? 

The principal document that must be filled out and presented is the Annual Non-Resident CIT Form (2019 version), which is utilized for the Non-Resident Enterprise Income Tax in the People’s Republic of China. In addition, a variety of attachments are required to be completed and submitted where applicable.

They include: 

• Schedule of Tax-Adjusted Items  
• Schedule of Enterprise Income Tax Makeup and Losses List
• Annual Schedule of Expenses for Exploration and Development of Foreign Cooperative Oil Exploitation Enterprises 
• Distribution Form for Consolidated Payment of Income Tax by Non-Resident Enterprises and Establishments 
• Approved Calculation Schedule for Non-Resident Enterprise Institutions and Establishments 
• Report Form of Withholding Enterprise Income Tax of the People’s Republic of China (2019 Edition) 

Completing the annual CIT filing in China can be quite complex, particularly for companies that have numerous operations scattered throughout a city or region. Consequently, errors can occur, resulting in inadvertent breaches of China’s tax regulations and the imposition of penalties.

To minimize these risks and guarantee a seamless tax settlement process, it is advisable to engage tax specialists in China to provide guidance and help with tax filing procedures.