2021 China Individual Income Tax must be settled before June 30th, 2022
Between March 1st and June 30th, 2022, individual taxpayers who were residents in China in 2021 are required to handle the Individual income tax (“IIT”) annual settlement for the year. Under China’s tax laws and regulations, individuals who stay in the country for 183 days or more during a calendar year are regarded as resident taxpayers and should complete the annual IIT reconciliation process, regardless of being Chinese or foreigners.
Taxpayers who were tax residents in 2021 who will depart from China before the deadline shall handle the annual settlement before leaving the country.
The State Administration of Taxation issued last February the Announcement on Handling the Final Settlement and Payment of Individual Income Tax on Comprehensive Income in 2021 (SAT Announcement  n. 1), which provides a guideline for taxpayers required to handle the annual settlement.
Annual IIT reconciliation is a process applied to individual taxpayers on their comprehensive income (an individual’s combined income of wages and salaries, remuneration from labor services, author’s remuneration, and royalties), to make sure their IIT paid in the previous tax year is accurate.
The annual settlement can be handled directly by the taxpayer. Alternatively, the taxpayer can entrust the employer that acted as withholding agent (taxpayer shall confirm with the entity in writing or electronically before April 30th, 2022, and provide supplementary information), or appoint a tax professional by signing a power of attorney.
The annual IIT reconciliation applies specifically to resident taxpayers in the following circumstances:
>> Taxpayers deriving comprehensive income from two or more sources, and the balance after deducting special deductions (that is, mandatory social insurances and housing fund) from the amount of annual comprehensive income exceeds RMB 60,000 (US$8,962);
>> Taxpayers deriving one or more items of comprehensive income from labor services, author’s remuneration or royalties, and the balance after deducting special deductions from the amount of annual comprehensive income exceeds RMB 60,000 (US$8,962);
>> Taxpayers who paid an amount in advance within a tax year that is less than the tax payable amount; and the taxpayer who has applied for a tax refund.
Foreigners will need to pay attention to this process if the taxpayer derives income from two or more sources, changes company, or takes an employment gap during the tax year; taxpayer obtains varies type of income (for example get both wages and salary, labor services, and royalties in a tax year); taxpayer obtains taxable income but there is no withholding agent, or the withholding agent does not withhold tax or does not withhold the tax correctly, and if taxpayer obtains overseas income.
There are a few exemptions. If a taxpayer prepaid the IIT during the tax year and meets any of the following circumstances, he/she will not be required to make an annual settlement:
>> The comprehensive income does not exceed RMB 120,000 in the tax year;
>> The make-up payment does not exceed RMB 400;
>> The tax prepaid during the year is consistent with the final annual tax payable amount; and
>> Those who do not apply for a tax refund even if meeting the conditions.
Taxpayers are required to determine their taxable income and the amount of IIT payable for the 2021 fiscal year following these steps:
1. To calculate aggregate of four income categories (wages and salaries, income from personal services, author’s remuneration, and royalties) obtained during the period from January 1st, 2021 to December 32st, 2021. Other kinds of income such as business income, property lease income, income from transfer of property, occasional income, interest, and dividends are not included in the computation.
2. Deduct from the amount computed at Step 1: (a) the standard deduction (RMB 60,000); (b) the special deductions (social insurance contributions); (c) the special additional deductions: and, (d) other available deductions determined in accordance with laws and regulations (such as qualified donations).
The annual settlement can be handled through online channels (including an app for mobile phones); it can also be done by mail or physically at the tax office.
After the annual settlement, the taxpayers shall keep all the materials and supporting documentation for five years.
If you are eligible for a tax refund, you can get it through the IIT app.
Individuals are required to fill in correct bank card information at the time of declaration. The bank card added for tax refunds must be a Chinese bank account and is recommend that taxpayers use Type I accounts (full-function bank settlement accounts and bank cards with functions such as deposits and withdrawal, money transfers, payments). The tax refund will then be deposited into the account upon examination and approval by the tax authorities, which may take up to seven days.
Tax authorities will never ask taxpayers to provide bank account details or other relevant information through text messages, phone calls, or unofficial apps. Be suspicious of any requests for information as scammers may pretend to be government officials to gain access to personal information and bank details.
After having submitted the annual IIT reconciliation, foreign taxpayers working in the Hong-Kong-Macao-Guangdong Greater Bay Area (GBA) may also be eligible for IIT subsidies. In previous years, the IIT subsidy was launched one or two months after the annual IIT tax reconciliation closes.
To learn more about our services in China, contact our Head of Business Advisory - Ms. Kristina Koehler-Coluccia at email@example.com.
DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.