Are you ready for the new Individual Income Tax annual filing in China?

Published On - 28 novembre, 2019

Albert Hui China, Actu Orbis

The implementation of the new PRC Individual Income Tax (“IIT”) Law starting this year opened a new chapter in China tax reform. Two concepts are introduced for the first time, which lead to significant changes in tax declaration and annual filing:

  • Comprehensive income: it does not just cover salary, but also include labor remuneration, authors remuneration, and royalties into tax declaration.
  • Special additional deductions: in the new policy, it adds special items that can be deducted from an individual’s taxable income, which leads to less tax amount. However, several documents are required to prove those special additional deductions.

Furthermore, we must be clear that comprehensive income obtained by individuals should be subjected to annual tax filing. Individual taxpayers rather than enterprises are taken as the body of annual filing, which puts more legal obligations and duties on the individual taxpayer. In such a condition, individuals have to take responsibility to make the tax declaration and learn to perform the first year IIT annual filing since 2020.

There are some material issues to be clarified before the annual filing:

A) Who needs to do the annual tax filing for IIT?

According to Article 25 of new PRC Individual Income Tax Regulation, circumstances in which comprehensive income needs to be declared in the annual filing include:

  1. The comprehensive income is obtained from more than two places, and the balance of the annual comprehensive income minus the special deduction exceeds RMB60,000;
  2. Individuals gain one or more income from labor remuneration, authors remuneration, and royalties, and the balance of annual comprehensive income minus the special deduction shall exceed RMB60,000;
  3. The prepaid tax amount during the year is less than taxable amount;
  4. The taxpayer applies for a tax refund.

B) How do you complete annual tax filing for IIT?

Taxpayers have to prepare for supporting documents and declaration forms in advance, including:

  1. Form: Annual tax return for Individual Income Tax
  2. Documents related to income, special deduction, special additional deduction, and other deduction (such as donation, tax incentives, etc.). All those documents should be kept for future reference and submission to tax authorities.

C) How can you apply for a tax refund?

In some circumstances, individual taxpayers can apply for tax refund, including:

  1. Inaccurate monthly tax declaration, which leads to prepaid tax amount is more than payable tax amount;
  2. Special deductions are not calculated in monthly tax declaration;
  3. The incorrect tax rate is applied in the monthly tax declaration.

Taxpayers should be aware of such circumstances and prepare for relevant documents for submission.

Regarding massive professional knowledge involved in declaration and annual filing, an individual taxpayer can also entrust third-party professionals to assist in tax plan annual filing.

If you wish to discuss/share your proposal with us, please do not hesitate to leave your enquiry at contact@orbis-alliance.com. We will get back to you very shortly.