On January 20, 2009, the State Administration for Taxation (SAT) of the People’s Republic of China (PRC) promulgated the Circular on Enhancing the Administration for Provisional Payments of Enterprise Income Tax, Guo Shui Han (2009) 34, the Circular). The Circular took effect on the date of issuance.
The Circular supplements the EIT provisional payment mechanism under the PRC Law on Enterprise Income Tax (the EIT Law) and the Implementation Rules of the EIT Law (the Implementation Rules). Although an enterprise’s EIT payable is calculated on an annual basis, the EIT Law and the Implementation Rules require provisional payments of EIT to be made every month or every quarter. When a tax year ends, an enterprise and its tax authority will make a final settlement to see whether the provisional payments have met the annual EIT payable.
The Circular restates that an enterprise must pay provisional EIT monthly or quarterly based on its actual monthly or quarterly profits, and that if it is difficult to determine its provisional EIT on an actual profits basis, the provisional EIT may be determined based on the average monthly or quarterly profits for the immediate previous year, or based on other methods allowed by the competent tax authority. However, the Circular further specifies that, in principle, the actual profits method should apply to those enterprises identified by the tax authorities as key sources of taxation.
During a tax year, if the ratio of the total amount of provisional EIT payments made by an enterprise for the year to its EIT payable for the same year is obviously too low, the tax authority must identify the causes of this situation and adjust the provisional EIT payment method or amount accordingly. In principle, the total amount of provisional EIT payments within a tax territory should not be less than 70 percent of the total amount of EIT payable (i.e., the amount of provisional EIT payments plus the amount of additional EIT payments after the final settlement, minus the amount of refunds of overpaid EIT after the final settlement) therein.
By quantifying the ratio of provisional EIT payments to the total EIT payable, the Circular will serve as a clear guidance for the various level tax authorities.