How to Correct Tax Over-Deductions for Foreigners and Late Fees?

  

Source: OT-Team(G), 国家税务总局

  Foreigners facing tax over-deductions can correct them, but may incur late fees.

Foreign residents who receive a notification stating that their tax-exempt allowances under the "Old Eight Categories" and their personal special additional deductions have been double-counted may wonder how to correct this issue and whether late payment interest will be incurred.

According to the Announcement on Continuing the Implementation of the Individual Income Tax Policy on Allowances for Foreign Individuals (Announcement No. 29 [2023] of the Ministry of Finance and the State Taxation Administration), foreign individuals who qualify as tax residents can choose between two tax benefits:

1.Special Additional Deductions for individual income tax, or

2.Tax-exempt allowances such as housing subsidies, language training fees, and children's education expenses, in accordance with previous regulations, including:

(1)Notice on Certain Individual Income Tax Policy Issues (Cai Shui Zi [1994] No. 020)

(2)Notice on the Tax Treatment of Allowances Received by Foreign Individuals (Guo Shui Fa [1997] No. 54)

(3)Notice on Tax Treatment of Housing and Other Allowances Received by Foreign Individuals in Hong Kong and Macau (Cai Shui [2004] No. 29)

However, individuals cannot enjoy both benefits simultaneously within the same tax year. Once a choice is made, it cannot be changed during the tax year.

If a double deduction has occurred, taxpayers must choose to apply either the tax-exempt allowance policy or the special additional deduction policy when making corrections. If the correction involves amending tax filings from previous years and results in additional tax payments, late payment interest will be charged.