China’s New Rules for Individual Income Tax Annual Filling: Key Insights for Individuals and Companies
China’s Individual Income Tax (IIT) system has seen significant changes in recent years since 2019, aiming for greater fairness and transparency. In our previous article, we shared the general concept of Individual Income Tax Annual Filling, and briefly explained who should do this filing and how.
Since then, the State Administration of Taxation issued every year an Announcement of the State Taxation Administration on Issues with Respect to Individual Income Tax Self-filing on their official website. With the joint support and active participation of all sectors of society, the five fillings have been smooth as a whole, and the conditions are in place for the introduction of a more stable and shaped management method for the filling of consolidated income.
The latest development, the “Measures for the Administration of the Filing of Returns of Individual Income Tax on Comprehensive Income on a Consolidated Basis“(Measures), signals a move towards streamlining and standardizing the process of filling income earned in China that is subject to IIT. The Third Plenary Session of the 20th CPC Central Committee put forward the proposal of “perfecting the individual income tax system that combines comprehensive and classified”, which put forward higher requirements for regulating the service and management of comprehensive income filling for individual income tax.
Understanding these new measures is crucial for both foreign nationals working in China and the companies employing them.
What is “Comprehensive Income”?
It’s important to clarify what constitutes “comprehensive income” under China’s IIT system. This generally includes:
- Salaries and Wages: This is the most common form of income for employees.
- Income from Labor Services: This includes earnings from independent contractors or freelancers.
- Author’s Remuneration: Income earned from writing or publishing.
- Royalties: Payments received for the use of intellectual property.
These four categories are now consolidated under the “comprehensive income” umbrella, and this new regulation likely addresses how taxes are calculated and declared for this combined income.
Key Features of the New Policy
- Upgrading the system
Transformed from an annual announcement to a formal regulation, which is more stable and offers clearer rights and obligations.
- Service Optimization
Pre-filled Returns: The system automatically pre-fills income and deducts information, reducing manual operations.
Appointment Processing: Appointment Processing through the Individual Income Tax APP from February 21 to March 20, and no need to make an appointment after March 21.
Priority Tax Refunds: Groups with heavy burdens of life[1] are eligible to enjoy efficient tax refunds.
- Provision of channels for objections and appeals
The tax authorities provide channels for objections and appeals if there are doubts about one’s income tax situation or if there is fraudulent use of one’s identity.
- Protection of Rights and Interests
Strict confidentiality of taxpayer information and clear channels for legal remedies.
- Clarify the preparation before fillings and guide taxpayers to make all preparations for fillings
Before the commencement of fillings, taxpayers can
- promptly confirm the validity of the basic information such as the contact phone number and bank account filled in in the Individual Income Tax APP;
- confirm the accuracy of the information on the consolidated income, relevant deductions, and the amount of paid tax through the Individual Income Tax APP or the access of the withholding agent;
- comb through the relevant evidentiary materials filled in when filling. Relevant evidential information.
Who needs (or does not) to file
- Need not to file
- If taxpayers’ annual income is no more than 120,000 RMB or the makeup tax is less than 400 RMB.
- If the declared/paid tax is relevant to the actual tax payable (no difference).
- If taxpayers are eligible for a tax refund but voluntarily waived.
- Need to file
Tax Makeup – Taxpayers must pay tax if their annual income is over 120,000 RMB and the makeup tax is over 400 RMB.
Tax Refund — Taxpayers who need to get a refund if they haven’t benefited from the special additional deductions completely, and/or they have applied for the wrong items of income, or other situations, etc, resulting in a declaration below the standard or non-declaration of the consolidated revenue for the taxable year.
*Matters on Tax Refund Reminder
Paragraph 2 of Article 24 of the Measures stipulates that “the tax authorities shall notify the taxpayers to provide additional information or correct the remittance declaration when they find that the tax refund application does not comply with the regulations after the review; if the taxpayers refuse to provide the information or correct the declaration, the tax authorities shall not refund the tax”.
If the tax authorities determine that a tax refund application does not comply with regulations during the tax refund audit, they will remind taxpayers through individual income tax apps, website messages, SMS, phone calls, and other methods. After receiving the message, the taxpayers should supplement the information or correct the declaration of remittance promptly, to avoid affecting their tax credit.
Conclusion
The Measures represent a significant development in China’s evolving IIT system. By grasping the key considerations and taking proactive measures, individuals and companies can effectively navigate these changes and ensure compliance with Chinese tax regulations.
For more information, please contact us.
[1] Groups with heavy burdens of life: groups with older and younger children, groups with a heavy burden of medical treatment, groups with a large reduction of income, and groups that apply to a simplified declaration of tax refunds.
