What you need to know about Personal Income Tax (PIT) in China
Taxpayers in China
Personal Income Tax (PIT) is usually been identified as Individual Income Tax (IIT). In China, the taxpayers of PIT include both Resident Individual Taxpayers and Non-resident Individual Taxpayers.
“Individual Income Tax Law of the People’s Republic of China” – Article 1
A resident individual is an individual who is domiciled in China or who is not domiciled in China but has stayed in the aggregate for 183 days or more of a tax year in China. A resident individual shall, in accordance with the provisions of this Law, pay individual income tax on his or her income obtained inside and outside China.
A nonresident individual is an individual who neither is domiciled in China nor stays in China or who is not domiciled in China but has stayed in the aggregate for less than 183 days of a tax year in China. A nonresident individual shall, in accordance with the provisions of this Law, pay individual income tax on his or her income obtained inside China.
Taxable Income Items & Tax Rate:
- Comprehensive Income
- Salary income
- Labor remuneration
- Income from authors remuneration
- Royalty income
Tax Rate: Excess Progressive of Tax Rate
The highest level is 45%, and the lowest level is 3%, with a total of 7 levels.
- Business income
Tax Rate: Excess Progressive of Tax Rate
The highest level is 35%, and the lowest level is 5%, with a total of 5 levels.
- Other Income
- Income from interest, dividends, and bonuses
- Income from lease of property
- Income from transfer of property
- Incidental income
- Income from other sources
Tax Rate: Proportional Tax Rate (20%)
PIT Declaration
The payable PIT is mainly “withhold and remit tax” declared and deducted by the Employer (normally the Company) in China. Most of the taxable income items are declared on a monthly basis or on a time basis, and the income from abroad can be declared on an annual basis.
“Individual Income Tax Law of the People’s Republic of China” – Article 6.1
For comprehensive income obtained by a resident individual, the taxable income shall be the remainder after deducting the CNY 60,000 quota, special deductions, special extra deductions, and other deductions specified according to the law from his or her gross income obtained in a single tax year.
As the declaration of comprehensive income is still on a monthly basis, the monthly applicable tax rate will change based on the accumulated gross income, which will lead to as well the change on the net income.
Annual Tax Filing Obligations
From the fiscal year 2019, according to the latest PIT Law effected from January 1st 2019, both local Chinese and foreign nationals employed in China are required to declare their annual individual income tax by March 31st of the next fiscal year. Due to the COVID, the deadline for annual tax filing 2019 has been delayed to June 30th 2020.
The taxpayers of PIT do not need to apply for annual tax clearance if:
- the annual comprehensive individual income is no more than CNY 120,000;
- the payable supplementary tax is less than CNY 400;
- the taxpayer does not intend to apply for a tax rebate;
The non-resident individual taxpayers can also be exempted from annual tax clearance.
If the taxpayers (including both local employees and foreigners) need to make supplementary payments for tax (except circumstances where the taxpayers meet the standard to be exempted from handling tax clearance), but fail to handle annual tax clearance in accordance with the laws, the taxpayers may face administrative punishment and their behavior may be filed in the PIT payment credit records.
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