China Individual Income Tax (IIT) Annual Filing

Keeping on top of annual tax filing in China has always been not just essential, but also a legal requirement. And with so much red tape and nuanced tax laws to decipher, getting expert advice or thoughtful tips to simplify the whole process is highly recommended.

Local taxpayers and non-resident taxpayers in China must know where they stand in regards to their own tax filings. The only issue is that you need to have a wider understanding of Chinese tax regulations, which can be confusing.

What Are Annual IIT Filings in China?

IIT stands for Individual Income Tax in China and is regarded as a progressive tax system that has rates anywhere between 3% to 45% of your yearly earnings, depending on what criteria you fit.

If you live or work in China for extended periods, you will have to file your annual income tax settlement for comprehensive income.

What is the Annual Comprehensive Income IIT Tax Settlement?

A clear definition of “comprehensive income” is money made from salaries or wages that are from personal services, all manner of remunerations, and royalties. Essentially, the IIT on the money you make from your job or any other kind of personal income will need to be withheld. By the end of the tax year, those living and working in China will need to calculate annual taxable IIT on that total figure to pay the right amount.

Your taxable income is your total comprehensive income for the year minus the standard RMB 60,000 basic deduction, social insurance contributions, and any other allowable special and additional deductions.

Once your annual taxable income has been calculated, the next step is to calculate your final individual income tax (IIT) for the year. China applies progressive tax rates to comprehensive income, along with a corresponding quick-deduction amount for each bracket.

After calculating the final tax, compare it with the IIT already withheld by your employer during the year. This allows you to determine whether:

• Additional tax is due, or
• You are entitled to a refund, or
• Your prepaid tax matches your final liability.

Who Needs to File Annual IIT Tax Returns?

Chinese tax residents are required to complete the annual IIT reconciliation if they need to pay additional tax, or if they wish to claim a refund. However, a resident does not need to file the annual return if they meet one of the exemption conditions set by the tax authority-for example, if their total comprehensive income does not exceed RMB 120,000, if the balance due is no more than RMB 400, or if prepaid tax already matches the final tax owed.

Which Foreigners in China Need to File IIT Returns?

Foreign individuals who stay in China for 183 days or more in a calendar year generally need to consider whether they must file an annual IIT return. However, these categories are broken down into two main sections. Foreign people living and working in China are not classed as residents per se, although some exceptions are made. Please see a clear definition below that categorizes people who are not of People’s Republic of China nationality.

Resident Foreign Individuals
Resident foreign individuals are foreign nationals who either have their domicile in China or, without domicile, have stayed in China for at least 183 days in a single tax year.

Non-Resident Foreign Individuals
Non-resident foreign individuals are foreign nationals who do not have domicile in China and who stay in China for less than 183 days during a tax year.

This breaks down quite easily. If you are treated as a foreign tax resident in China, your IIT filing may need to include both China-source income and, in some cases, income from outside China for that year. If you are an individual non-resident, you will only need to file returns based on the income you made in China alone during the said tax year. You will not be taxed on any worldwide income you made in that tax year if you are in China for less than 183 days of said year.

How Do Resident Foreign Individuals Calculate Their Taxable Comprehensive Income in China?

If you are a resident foreign individual who needs to calculate your comprehensive income to calculate your payable IIT number, here are some steps you need to follow:

• Your amount of total taxable income is the total number of comprehensive income over the past year minus qualified deductions.
• The tax payable is calculated by applying the applicable progressive tax rate to your taxable income and then subtracting the corresponding quick-deduction amount.
• The number of owed tax or refunded tax is the amount of tax payable minus the tax withheld.

Please see a list of qualified deductions and relevant tax regulations below:

• Expenses around 20% of income that comes from remuneration for independent personal services, and any author’s remuneration or royalties.
• Tax-exempt Income.
• Standard 60,000 Yuan deduction.
• Any kind of itemized deductions, such as medical insurance, pension insurance, housing provident funds paid by individual residents, and unemployment insurance.
• Other additional itemized deductions such as your child’s education fees, medical treatments for serious illnesses, house rental payments, money used to support elderly parents, or even interest in any home loans you might have.
• Qualified deductions that can include tax-preferential commercial health insurance. Other specific taxes, other fees, annuities, and tax-deferred pension insurance.
• Charitable donations that are qualified.

In What Circumstances Are Foreign Residents Exempt from Filing IIT Returns?

Most foreign residents living and working in China have to file their IIT tax returns, but there are a few instances where you don’t need to. As a resident foreign individual in China, you only need to file your IIT returns if you meet these requirements:

• If your comprehensive income is higher than 120,000 Yuan and the yearly tax owed is more than 400 Yuan.

• If the tax you withheld is higher than the payable tax amount you need to get a tax refund because of that.

In regards to non-resident foreign individuals in China, there are no obligations for you to file IIT returns because you are in the country for less than the stated duration in a single tax year.

Are you Tax-Exempt in China?

The phrase ‘tax-exempt’ is welcome news for most people. And if you find yourself in this position, life in China is much simpler. If you are a resident foreign individual, you might not have to file your IIT returns if you’ve already had your comprehensive income withheld, or if you have met one of the below criteria:

• The total amount of your comprehensive income is less than 120,000 Yuan.
• The tax number you owe is less than 400 Yuan.
• The tax you have already withheld is the same as your payable tax for the year.
• When you have voluntarily waived your right to claim a refund.

Annual IIT Filing Timeline and Procedures

Now we have a keener understanding of IIT tax return filings and if you need to file this year or you are exempt, we need to go one step further. Here is an overview of the annual IIT filing timeline and the key steps to ensure everything is completed correctly and on time.

When do Resident Foreign Individuals Need to File IIT Returns?

All Chinese IIT taxes need to be filed between 1 March and 30 June. IIT returns for the previous year must be filed between these dates in the following year. China generally does not offer filing extensions in the way many Western countries do, and dishes out severe penalties for those who fail to file their IIT returns on time between the stated dates.

How Do I File My China IIT Tax Returns?

There are three main ways to file your China IIT tax returns. They are by doing it on your own, your employer does it for you, or engaging in a third-party agreement with a reliable financial service provider. Let’s go into these in more detail so you get a better understanding of the procedures.

Filing Your Own Tax Returns

The Chinese tax authorities have tax collection down to a fine art. Their system is second to none and will provide you with lots of super-fast and efficient online services. And because of this, you can lodge your own IIT returns with minimal hassle. As a resident taxpayer, you can file your IIT returns using online platforms and even via the official IIT App that is used on smartphones.

If you are not a tech person, you can file your returns physically by mail or directly by handing them over at your nearest tax office. But just remember that if you have more than one source of employment, you might want to report that to the tax offices instead of leaving it to any one of your former or present individual employers.

Getting Employers to Lodge Your Tax Returns

One of the best parts about working solely for a company in China is they can lodge your IIT tax returns for you. This is one of the easiest routes to take for sure. Companies have entire legal and accounts departments that know the procedures of filing all manner of tax returns in an orderly fashion.

If you live in China and work for a company there, you need to have a written agreement in your employment contract before 30 April. It should state that the company will calculate your comprehensive income with you and handle the related tax deductions and benefits. But always remember that it is you, the taxpayer, who is responsible and held accountable for the accuracy, authenticity, and completeness of the filings, not your employer.

Using a Third-Party Agent

The final, and quite possibly, the best route to take is by using a third-party agent who specializes in tax returns. Tax service providers already know all the nuanced tax regulations and what needs to be done. You will have to sign an authorization letter that gives the agent this responsibility. But once again, you are still liable if the details aren’t accurate and completed properly.

The vast majority of foreign expats working in China choose to go this route and leave their IIT- filing needs in the hands of a third-party agent. You just need to ensure you choose a reliable agent that is tried, tested, and trusted.

China IIT Tax Filling FAQ

Before we leave it in your capable hands, there are a few more things you might need to take into consideration. You can never have enough information in your hands when dealing with such a serious and important issue. You should make sure you understand the rules clearly so there are no gaps or surprises in your tax position.

Check out our China IIT Tax Filing frequently asked questions section so you can rest easy and sleep well at night.

Should I Personally File my IIT Tax Returns?

As we mentioned above, you can do it yourself or leave it to your employer, but getting a reliable third-party tax service provider is probably the best move. They are experts on this kind of thing, and you aren’t. They know the possible pitfalls and know the comprehensive income calculations, rules, benefits, and deductions like the back of their proverbial hand.

Is worldwide income from other countries taxable for resident foreign individuals in China?

If you are a resident foreign individual domiciled in China, any income you make from other countries is taxable by Chinese tax laws. It will be included in your overall calculation, although it may not be taxed in exactly the same way as income earned in China, but it will need to be declared.

If you are a resident foreign individual in China who is not domiciled there, the income from outside countries that you pay tax on elsewhere may not be combined with the income you are taxed on in China. The circumstances and situations are all different, so best to play it on a case- by-case basis.

Can resident foreign individuals use a foreign bank for tax refunds?

If you are in the position of receiving a tax refund in China, it cannot be paid into a foreign bank account. You will need to open a Chinese bank account if you don?t already have one to receive your Chinese tax refund.

What are the main IIT tax deductions for foreigners working in China?

If you are a foreign employee in China, certain benefits may enjoy preferential IIT treatment, such as housing, language training, children’s education, relocation, laundry, home leave, and business travel expenses.

Be Prepared or Be Prepared to Fail

In conclusion, you need to be prepared or be prepared to fail were the subject of filing your IIT China tax returns is concerned. In practice, most resident foreign individuals with annual China-source comprehensive income above RMB 120,000 should check whether they must complete the annual IIT reconciliation, especially if additional tax is due or a refund is expected.

You could do that yourself by using an online app, mailing your returns, or even handing them in directly at your nearest tax office. Alternatively, you could use a third-party tax service provider to do that for you. Or you could be in the fortunate position of working together with your employer to iron out the calculations, deductions, and overall tax benefits before submitting them.