2025 Reimbursement Rules Warnings
In recent years, tax authorities have intensified scrutiny over corporate financial management, placing higher compliance demands on companies, particularly in expense reimbursement. Many companies have faced penalties, back taxes, or even criminal liability due to non-compliant practices.
In this article, we share key reimbursement risks under the latest tax policies, provide actionable compliance strategies, and help companies operate with greater confidence.
I. Key Tax Audit Focus Areas: High-Risk Reimbursement Practices
According to public information from the State Administration of Taxation (SAT) and local tax authorities, the following areas are under heightened scrutiny.
- Falsified Invoices and Fabricated Transactions
Fabricating invoices or falsifying company expenses to extract company funds remains a top priority for enforcement. Under Article 37 of Measures for the Administration of Invoices, issuing or using false invoices can result in confiscation of illegal gains. Fines range up to RMB 50,000 for amounts under RMB 10,000 and RMB 50,000 to 500,000 for larger sums. Criminal charges may apply in severe cases. - Personal Expenses Claimed as Business Costs
Some companies disguise personal spending (e.g., luxury goods, vacations, household expenses) as “office supplies” or “travel expenses” to reduce corporate income tax. This constitutes tax evasion under Article 63 of the Tax Collection and Administration Law, punishable by back taxes, late fees, and fines of 50% to 500% of the evaded amount. - Large Cash Payments Without Proper Reporting
According to the Notice of Taxation on Policies Regarding the Pre-tax Deduction of Handling Fees and Commissions Incurred by Enterprises, commissions or service fees exceeding RMB 50,000 to individuals must be paid via bank transfer with withheld individual income tax. Cash payments without documentation risk being classified as concealed income or fictitious costs.
II. Compliance Recommendations for Businesses
- Strict Documentation Review
Ensure all reimbursement invoices are authentic, legally valid, and directly related to business activities.
Reject “third-party issued invoices” or those “lacking genuine transactions”. - Regulate Reimbursements for Executives & Shareholders
Personal expenses must not be recorded as company costs. Shareholder loans must be repaid within the fiscal year or face 20% dividend tax . - Adopt E-Invoicing & Digital Systems
Implement ERP or financial software to automate approvals and reduce manual errors.
Verify e-invoices promptly to prevent duplicate claims. - Conduct Regular Compliance Training
Keep finance teams updated on policy changes to avoid misinterpretations.
III. Case Studies
Background
During its early R&D phase, a Guangzhou-based startup company experienced disorganized internal management and financial record-keeping. This included a prolonged practice of employees making out-of-pocket payments for office supplies. Tax authorities discovered during an audit that reimbursements from personal accounts and company funds were improperly commingled, resulting in unclear accounting records. Ultimately, the frequent use of personal accounts for business reimbursements was classified by tax authorities as “using invoices to offset salaries”, constituting suspected personal income tax evasion. The company was consequently required to pay back taxes and penalties in accordance with the law.
Key Red Lines for Employee Reimbursements
- Purchases exceeding RMB 1,000 per transaction must be paid directly from the company’s official account or petty cash. Employee reimbursement for such amounts will face strict scrutiny.
Note: Petty cash is typically reserved for incidental expenses under RMB 1,000; larger amounts require formal company transfers. - Frequent reimbursement requests will be analyzed for potential salary-splitting schemes. Tax authorities will examine whether:
Reimbursement amounts are identical or show minimal variation
The practice correlates with divided salary payments designed to reduce tax liabilities
There’s evidence of salary being split between formal payroll and reimbursed amounts - Non-compliant invoices (either mismatched to actual business activities or informal receipts) will result in:
Disqualification of the expense for corporate tax deductions
Full tax payment on the disallowed amount
Compliance Guidelines for Employee Reimbursements
- Employee reimbursements are permitted but must be:
Legitimate business expenses
Properly documented with supporting evidence (purchase orders, contracts, or email correspondence)
Compliance with all relevant regulations - Large transactions are subject to heightened regulatory monitoring:
Corporate-to-personal transfers: >RMB 50,000
Corporate-to-corporate transfers: >RMB 2 million
Personal transfers: >RMB 200,000 (cross-border) or RMB 500,000 (domestic) - Avoid reimbursement patterns that suggest salary-splitting:
Identical or nearly identical amounts
Regular, predictable reimbursement cycles
Corporate Liability for Non-Compliance
Companies tacitly allow employees to use their private accounts to handle public-to-private transfers, which seems to be convenient, but in fact is fraught with hidden dangers.
On the one hand, cash management regulations prohibit large amounts of public-to-private transfers; on the other hand, if the flow of water in the personal account cannot be matched with the business, it will easily be recognized as disguised welfare (or salary splitting). As the ultimate carrier, the company will be required to pay taxes and rectify the situation, including but not limited to individual income tax, corporate income tax, and various penalties.
This kind of operation not only disrupts the financial order but also triggers legal risks such as money laundering and tax evasion, and at the same time, the company’s tax credit rating will be greatly reduced, which is not conducive to the development of subsequent company business.
IV. Conclusion
Reimbursement management may seem routine, but non-compliance carries severe consequences. With the Golden Tax System Phase IV enhancing real-time monitoring, companies must strengthen internal controls and ensure adherence to regulations.
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