On November 7th, 2019, China’s State Administration of Tax (SAT) released the Announcement on Matters Related to Tax Credit Restoration, effective from January 1st, 2020.
The announcement clarifies conditions and procedures for tax credit repair: corporate taxpayers can correct their untrustworthy behavior by fixing their tax irregularity and making credit commitments, in order to have their tax credit restored. Therefore, corporate taxpayers are advised to leverage the policy to maintain a good tax credit rating to access tax preferential policies and convenient tax-related services.
The conditions, criteria and methods for tax credit restoration are several. According to the announcement, eligible corporate taxpayers applying for tax credit restoration must satisfy one of the following three conditions:
Condition I - is met when the enterprises, which have previously failed to declare and pay tax, have fixed the tax incompliance records within the statutory limit;
Condition II - is met when the enterprises that previously failed to pay or pay in full the taxes owed and was categorized as a class-D credit taxpayer (not due to a crime) have corrected their behavior within 60 days upon the statutory payment deadline;
Condition III - is accomplished when the ‘abnormal’ status is removed.
The enterprises who wants to enjoy such tax restoration option, shall submit the application form to the relevant tax bureau and make a commitment that all irregularities have been corrected. The tax bureau, within 15 days, will inform the applicant of the result: in case of positive result, the tax credit rating will be recovered; if the tax authority discovers that the taxpayer failed to fulfill the promise of credit repair and applied for tax credit repair by submitting false materials, the tax credit repair option will be cancelled and the tax payers’ will be downgraded in his annual tax credit evaluation.
Tax credit rating – currently categorized as A, B, M, C, and D – has become an important reference for enterprises when they interface with tax authorities and seek access to tax preferential policies. It also affects how they conduct business with other enterprises and individuals – taxpayers showing a poor tax credit rating are more likely to be avoided.
This announcement shows the increasing intent from tax authorities in China to contrast tax evasion and is strongly recommended for corporate entities to keep an eye on their tax credit rating to avoid tax inspections.
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