Compliance Series | Latest Policy on "Three-Generation" Handling Fee Refunds

In order to further standardize and strengthen the management of handling fees for tax withholdings, collections, and entrusted collections (hereinafter referred to as "three-generation" taxes), the State Administration of Taxation, in conjunction with the Ministry of Finance and the People's Bank of China, issued Taxation Financial Issuance [2023] No. 48 (hereinafter referred to as "No. 48 of 2023") on September 24, 2023, adjusting the policy for managing handling fees for "three-generation" taxes.

From early January to the end of March each year, withholding agents, collection and withholding obligors, and tax collecting agents may apply to the tax authorities for refunds of "three-generation" tax handling fees for the previous year. Below, we will summarize the key points of Document No. 48 of 2023 in this article.

"Three-Generation" Scope

The scope of "three-generation" tax handling fees includes three parts: tax withholding and collection, tax collection and payment, and entrusted collection, as follows:

• Tax Withholding and Collection

Tax withholding and collection refer to the act of tax authorities withholding and remitting taxes from the income paid to obligors who are obliged to withhold taxes in accordance with tax laws and administrative regulations.

• Tax Collection and Payment

Tax collection and payment refer to the act of tax authorities collecting taxes from obligors who are obliged to withhold taxes when receiving payments and remitting them to the tax authorities.

• Entrusted Collection
  

Entrusted collection refers to the act of tax authorities entrusting relevant units and individuals to collect taxes sporadically, in a scattered manner, or from remote locations, in accordance with the requirements of the "People's Republic of China Tax Collection and Administration Law" and its implementation regulations, the principles of voluntariness, simplicity, strengthened management, and lawful delegation, and relevant national regulations.

Sinobravo Reminder: Whether it is a unit or an individual, as long as they fulfill the obligations of tax withholding, collection, or collection and payment in accordance with laws, administrative regulations, or entrusted collection agreements, they can apply for refunds of "three-generation" tax handling fees.

Regulations on the Payment Ratio of "Personal Income Tax Withholding and Collection Handling Fees": The handling fees for personal income tax withholding and collection are included in the scope of "tax withholding and collection taxes." Although Document No. 48 of 2023 stipulates that the handling fees shall be paid at a rate not exceeding 0.5% of the withheld tax, with an annual maximum limit of 700,000 yuan for payments to individual withholding obligors, it also mentions separately the "For cases where the proportion of fees is specified by laws or administrative regulations, the specified proportion shall be followed." In other words, the payment ratio for handling fees for personal income tax withholding and collection shall still be executed in accordance with Article 17 of the "People's Republic of China Personal Income Tax Law (2018 Amendment)," which states that a fee of 2% shall be paid to the withholding obligor based on the withheld tax.

"Three-Generation" Tax Handling Fee Application Deadline:

Withholding agents, collection and withholding obligors, and tax collecting agents should submit relevant materials for applying for refunds of "three-generation" tax handling fees for the previous year to the tax authorities by March 31st each year. Failure to submit the application in a timely manner due to reasons of the "three-generation" unit or individual itself shall be deemed as an automatic waiver of the "three-generation" tax handling fees for the previous year.

Sinobravo Reminder: Regarding the application process for refunds of "three-generation" tax handling fees, in general, the application for the handling fees for personal income tax "three-generation" taxes can be handled through the individual electronic tax service bureau or the withholding terminal. In addition to personal income tax, the application for handling fees for "three-generation" taxes other than personal income tax can be handled through the local electronic tax service bureau. The specific application procedures may vary depending on the region, and it is recommended to consult the local tax authorities.

Furthermore, the handling fees for "three-generation" taxes shall be subject to value-added tax under the item of "brokerage and agency services," with a tax rate of 6% for general taxpayers and a collection rate of 3% for small-scale taxpayers.

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