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An Introduction to China’s Taxpayer Credit Rating System

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We explain China’s taxpayer credit rating system, including how it works and why it is important for foreign enterprises based in the country and doing business in China.

Taxpayer credit rating is becoming increasingly important for foreign enterprises operating in China as its government – at all levels – is working continuously to improve the country’s social credit system.

A good tax credit rating means the enterprise will access more favorable treatment when obtaining tax incentives, making bids, applying for loans, obtaining business qualifications, etc., while a poor rating can lead to more stringent scrutiny in a wide range of tax-related matters.

In this article, we will walk you through China’s tax credit management system to help you maintain a good tax credit rating.

How does China’s taxpayer credit management system work?

China established its taxpayer credit management system in 2014 with the roll-out of the Administrative Measures on Taxpayer Credit (Trial Implementation) (STA Announcement [2014] No.40). Since then, it’s been constantly perfecting this system and integrating it with the larger corporate social credit supervision mechanism.

Under the system, Chinese tax authorities collect and evaluate the taxpaying information of corporate taxpayers in each tax year (from January 1 to December 31) and confirm the taxpayer credit evaluation findings the following April.

After determining the credit ratings for taxpayers by way of annual evaluation benchmark scores or direct rating, the tax authorities implement corresponding administrative measures, including incentive and punitive measures, for taxpayers of different grades.

What is the scope of application?

The tax credit rating system applies to all corporate taxpayers that (a) have completed tax registration, (b) are engaging in manufacturing and business activities, and (c) subject to tax collection based on their accounts, pursuant to the STA Announcement [2014] No.40.

The scope of application was expanded by the SAT Announcement on Matters Related to Evaluation of Taxpayer Credit (STA Announcement [2018] No.8) in 2018 to cover:

  • Newly established enterprises, that is, enterprises that have been operating for less than a calendar year.
  • Enterprises without business income in a calendar year.
  • Enterprises whose corporate income tax (CIT) returns are filed on a deemed income basis.

In 2020, the STA Announcement about Issues Related to Credit Management on Tax Payment (STA Announcement [2020] No.15) added that a “non-independent accounting branch” (branches established by corporate taxpayers whose registration information has been confirmed with the tax authorities and who accounting method is non-independent accounting) can voluntarily choose to join the credit evaluation after application.

How are taxpaying credit ratings calculated?

So far, there are five credit ratings for corporate taxpayers – A, B, M, C, and D, as shown in the following table. Type A taxpayers own the best tax credit rating with a score of 90 points and above, while Type D taxpayers have the poorest rating. Type D taxpayers have either scored less than 40 or were graded directly as Type D (direct grading applies to taxpayers who have committed serious dishonest acts).

China’s-Tax-Credit-Ratings-for-Corporate-Taxpayers

Among them, the special Type M was newly added in 2018, which refers to newly established enterprises with no production and operation income in the tax year and with a tax credit score of more than 70 points.

The credit scores (usually with a starting score of 100 or 90, which we will explain in the next section) adopt the demerit method – taxpayers’ scores are deducted when they fail to meet taxpaying credit evaluation indicators.

China Type A Taxpayer

China Type D Taxpayer

What are the taxpaying credit evaluation indicators?

The taxpaying credit evaluation indicators consist of the taxpayer’s historic information, internal taxpaying information, and external taxpaying information, according to the STA Announcement on the Promulgation of Taxpaying Credit Evaluation Indicators and Methods (for Trial Implementation) (STA Announcement [2014] No.48). You may refer to the following table to have a rough idea about the respective evaluation indicators.

Taxpaying Credit Evaluation Indicators

The internal taxpaying information contains “recurrent indicators” and “non-recurrent indicators”.

The recurrent indicator refers to indicator information frequently generated by taxpayers during the year of evaluation, such as tax-related declaration information, tax payment information, invoices and tax control equipment information, registration, and accounts books information. The non-recurrent indicator refers to indicator information not frequently generated by taxpayers, such as the tax bureau’s record of tax assessment, tax audit, anti-tax avoidance investigation, or tax inspection information.

According to the STA Announcement [2020] No.15, if there is non-recurring indicator information in the past three evaluation years, the starting score of the taxpayer can be 100. In the absence of non-recurring indicator information in the past three evaluation years, the starting score is 90.

What are the incentive and punitive measures for taxpayers in China?

After determining the taxpayer credit rating, the tax authorities will implement administrative measures, including incentive and punitive measures, accordingly.

As we can see from the table below, contrary to Type A taxpayers who will be entitled to favorable treatment like streamlined administrative procedures and fast-tracked approvals, Type D taxpayers could face increased frequency of supervision and inspection and stricter scrutiny on a wide range of tax-related matters, such as application for invoice issuance and value-added tax (VAT) refunds on exported goods and monitoring business compliance.

SAT's Incentive or Punitive Measures for Taxpayers of Different Grades

Furthermore, the State Taxation Administration (STA) has actively been participating in the construction of China’s social credit system and the exploration of cooperation on credit sharing.

In 2015, the STA and the China Banking and Insurance Regulatory Commission (CBIRC) set up the “Bank-Tax Cooperation” mechanism. Tax authorities committed to forwarding part of the taxpayer’s tax credit information to banks under the premise of legal compliance and enterprise authorization. Banks will be able to use this information to optimize their credit model and provide credit loans for trustworthy small and micro firms. Since November 2019, the scope of beneficiaries has been expanded from Type A and Type B taxpayers to include Type M taxpayers (newly established ones).

Inter-agency collaborative agreements are an increasingly prominent feature of the Chinese regulatory landscape.

In July 2016, 29 Chinese regulatory authorities, including SAT, NDRC, People’s Bank of China (PBOC), etc., jointly signed a cooperation memorandum to grant 41 incentives to taxpayers with Class-A tax credit rating. In October 2016, 40 Chinese regulatory authorities jointly signed a Cooperation Memorandum to Grant Joint Incentives for Customs’ Advanced Certified Enterprises.

The STA has signed a Cooperation Framework on Credit Sharing and Application with the State Development and Reform Commission (NDRC) in 2017 and dozens of Memoranda of Joint Actions on Rewarding Honesty and Punishing Dishonesty with related government departments to further develop mechanisms in credit sharing, mutual rating recognition, and cooperation in reward and punishment with respect to credit rating results.

Does China provide taxpaying credit restoration measures?

To encourage corporate taxpayers to proactively fix their tax incompliance record, China also incorporates tax credit restoration measures into the taxpayer credit management system. This grants taxpayers a chance to repair their credit rating.

Pursuant to the Announcement on Matters Related to Tax Credit Restoration (SAT Announcement [2019] No.37), beginning January 1, 2020, corporate taxpayers included in China’s tax credit management system can apply for tax credit restoration by correcting tax irregularities and making credit commitments.

Eligible corporate taxpayers applying for tax credit restoration must satisfy one of the following three conditions:

  • Condition I: The enterprise has now completed all tax declarations, tax payments, and data filing, after previously failing to do so, within the statutory time limit;
  • Condition II: The enterprise that previously failed to pay or pay in full the taxes owed, late fees, and fines and was categorized as a Type D taxpayer (not due to a crime), has now paid or made up the payment within 60 days upon the statutory payment deadline; or
  • Condition III: The enterprise has fulfilled all corresponding legal obligations, and thereby the tax authority has lifted its ‘abnormal’ status.

Condition-Criteria-and-Methods-for-Tax-Credit-Restoration

The taxpayer can apply to the relevant tax bureau and make a commitment that the irregularities have been corrected and the tax bureau will then, within 15 workdays, complete the audit and inform the applicant of the result. After the completion of the tax credit repair, the taxpayer will be subject to the corresponding tax policies and administrative measures based on the recovered tax credit rating.

China has been putting great effort into optimizing its corporate credit system to improve the efficiency of tax and credit governance. Corporates are highly advised to keep track of their tax credit ratings and the reasons for their poor rating (if any), refer to the respective announcements from tax and regulatory bodies and seek professional advice to make up for the credit loss.

For further information or assistance in your tax credit management, you are welcome to contact us at china@dezshira.com or tax@dezshira.com.


About Us

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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