TAX ALERT | Refund of Three Authorized Tax Collection Commissions (Ⅰ)russonxiao
To further regulate and strengthen the administration of commissions paid for the withholding and remittance of taxes, the collection and payment of taxes, and the commissioned collection of taxes (hereinafter referred to as “Three Authorized Tax Collection Commissions”), and to make the refund of the three authorized tax collection commissions (hereinafter referred to as “Refund”) for enterprises and institutions more open and transparent, the Ministry of Finance, the State Taxation Administration and the People’s Bank of China adopted the «Notice on Further Strengthening the Administration of Commissions on the Commissioned Withholding and Collection of Taxes» in 2019.
In this article, we will take you through the definitions of the three authorized tax collection commissions and quickly explain their associated rates.
Three substitution matters are referred to: the Withholding and Remittance, the Collection and Payment, and the Commissioned Collection.
Withholding and Remittance
When units and individuals with withholding obligations make payments, the act of withholding and paying to the tax authorities on behalf of the tax authorities from payments made to units and individuals with tax obligations, usually the business applies to personal income tax withholding whereas corporate income tax and VAT withholding apply when paying profits or non-trade remittances abroad.
Collection and Payment
When units and individuals with withholding obligations collect payments, they collect and pay to the tax authorities on behalf of the tax authorities the units and individuals with tax obligations. Usually, the business is applied the taxes and fees (including consumption tax) arising from the charges for the processing of goods on commission.
The act of taxation authorities is entrusting relevant units and personnel to collect taxes paid sporadically, scattered and off-site. For example, the real estate registration department is entrusted by the taxation office to collect housing deed tax.
The resulting taxes for the above three substitution matters are called the “Three Authorized Tax Collection Commissions”.
- Management method of this refund
The national laws of PRC and administrative regulations stipulate that the taxation authority may refund a certain percentage or limit of the three authorized tax collection commissions paid by the enterprises and institutions annually to the withholding agent. The specific refund rates and limits are as follows.
- For the Withholding and Remittance of taxes, the proportion of the refund shall not exceed 2% of the total amount of taxes withheld, and the maximum amount paid to a single withholding agent for the fiscal year shall be 700,000 yuan, and the part exceeding the limit shall not be paid.
- For the Collection and Payment of taxes (of vehicle and vessel), the taxation authority will pay a handling fee of not more than 3% of the collected tax. For the entrusted processing of consumption tax, the taxation authority will pay a handling fee of not more than 2% of the collected tax, among which the handling fee will not be refunded if the entrusted parties are related.
- As for the Commissioned Collection of taxes, only the taxation acts that are commonly entrusted to the agency are listed. For example, if the taxation authority commissions the maritime management agency of the transportation department to collect the vessel tax on behalf of the ship, the taxation authority will pay a handling fee of not more than 5% of the tax collected on behalf of the ship. The taxation authorities entrust the collector to collect taxes on behalf of farmers’ markets and professional markets, as well as entrust the collector to collect other scattered taxes and taxes paid in different places, and the taxation authorities will pay a handling fee of not more than 5% of the collected taxes.
It can be seen that the matter of the refund of the three authorized tax collection commissions is a right given to each local taxation authority by the higher authority, which gives the maximum percentage and limit. Let us take Shanghai as an example: the refund percentage of withholding tax is 2% and the limit is 700,000, and in some other second and third-tier cities, the refund percentage is also 1.8%. Therefore, we need to refer to the relevant regulations of local tax authorities to get the specific refund percentage.
With that being said, is it subject to VAT since it is a government refund? When is the application deadline? Is there any risk involved? We will continue our explanation in the next article.
Should you have any questions, please contact us.
«Notice on Further Strengthening the Administration of Commissions on the Commissioned Withholding and Collection of Taxes»