Late payment penalties will be imposed on the amount of tax unpaid beginning the first day of payment default, computed at the rate of 0.05% per day. If the taxpayer fails to file a return or pay the tax due, additional fines may be assessed.
In addition to the overdue tax penalty, tax authorities can impose a fine of between 50% and 500% of the amount of tax unpaid or underpaid. If the underpayment of tax constitutes a criminal offence, the taxpayer shall be prosecuted for criminal liability in accordance with China laws.
Additional penalties may include up to CNY 2,000 for failure to file a return and pay tax within the prescribed time limits. A further fine of CNY 2,000 to CNY 10,000 may be imposed if the taxpayer or withholding agent fails to remedy the situation.
In cases where underpayment is due to the error of the tax authorities, the tax authorities may demand payment of the tax under-charged. However, overdue penalties may not be imposed.
A taxpayer may be penalized for the following non-compliance issues:
- Failure to apply for and complete tax registration, amendment, or cancellation of tax registration within prescribed time limits;
- Failure to establish and maintain proper account books and records, supporting vouchers, and other relevant information in accordance with regulations;
- Failure to report details of financial and accounting systems or financial and accounting methods and accounting software to the tax authorities in accordance with regulations;
- Failure to notify the tax authorities of all bank accounts in accordance with regulations;
- Failure to install or use tax-control devices according to regulations, or causing damage or unauthorized alterations to tax-control devices; and
- Failure to file tax returns and provide relevant tax information within the stipulated time limit.
In such cases outlined above, the tax authorities will order the taxpayer to remedy the situation within a specified time limit, and depending on the seriousness of non-compliance; a fine of up to CNY 10,000 may be imposed.
On 31 March 2021, China announced that no administrative tax penalties will be levied in respect of 10 listed first-time violations that have minor consequences, and where corrective action is taken before the violation is discovered or prior to the deadline issued by the tax authorities. The listed violations include failure to set up, keep or submit account books including those relating to collecting and paying withholding taxes, failure to submit tax declarations and documents within the due date, failure to properly issue/ obtain/ cancel invoices and submit invoice data, failure to report on engineering operations or labor services contracts with non-residents, and others.
When a taxpayer fails to update tax registration and make any correction by the deadline set by the tax authorities, the authorities maybe request the relevant industrial and commercial administrative authorities to revoke the taxpayer’s business license.
A MoU has been signed by 21 Chinese government departments/agencies for the implementation of measures on joint punishments for serious tax crimes that may be imposed on both enterprises and natural persons, including their legal and financial representatives.
Local taxation departments at all levels are to publish information on cases involving serious tax crimes on their official websites on a quarterly basis. This information is then to be forwarded to the relevant departments that are responsible for the implementation of punishment measures. The punishments include, but are not limited to:
- Preventing travel abroad;
- Restricting access to credit by financial institutions;
- Restricting the access to government-supplied land resources;
- Restricting government financial support and issuance of enterprise bonds;
- Banning the participation in government purchase activities and the use of customs-certified enterprise management;
- Restricting certain import quotas; and
- Increased supervision and management over inspection and quarantine work.