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. But where do you start? What’s it all about?
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 at best. You are on a need-to-know basis, and now you need to know, so let’s start at the beginning and work our way slowly towards the more complicated issues you might face.
What Are Annual IIT Filings in China?
If you are already a Chinese tax expert, you might want to skip this section, but if not, hold tight and put on your thinking cap. 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. If you are already confused, don’t worry. We will break this down into its bare components so you understand exactly what you are dealing with and what you need to be filing.
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.
If you are not sure what that amount entails, it’s against the total amount of personal income you made that year. The only deductions will be 60,000 yuan, and other itemized and additional deductions that the law covers. Once you have the amount of taxable income figure nailed, you now have to multiply that number using applicable progressive tax rates and you will have your payable tax figure. You will then take the balance of payable tax minus the tax you previously withheld to find out if you now owe tax or can expect a refund. Residents need to file the annual Chinese IIT returns to pay the amount they owe or to claim any refund they are owed.
Are we moving too fast? Maybe? Let’s rein it in a little to go back to basics before we step it up a notch or two.
Who Needs to File Annual IIT Tax Returns?
Anyone who resides in China for more than 183 days per calendar year is eligible to pay taxes. And it doesn’t matter if you are a local resident or non-resident living in the county. These tax regulations blanket everyone, Chinese residents and/or foreign expats working in China. Not many are exempt from paying tax in China. By law, you are required to submit your IIT liquidation on an annual basis.
Which Foreigners in China Need to File IIT Returns?
All of them if they have lived here longer than the stated duration during a single calendar year. 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
These are foreign people who have worked or domiciled or non- domiciled in China for the aggregate time of 183 days or more in a single tax year.
Non-Resident Foreign Individuals
These persons are defined as domiciled or non-domiciled foreigners or who do not live in China and have been here for less than 183 days in a tax year.
This breaks down quite easily. If you are an individual foreign resident in China, you will file your IIT returns based on the worldwide income you have received during the said tax 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 in 2021, 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 amount of payable tax is essentially the amount of taxable income plus any applicable progressive tax rates, or it could be the number of payable taxes equals the amount of taxable income multiplied by applicable tax rates and minus deduction coefficient.
- 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:
(A) Expenses around 20% of income that comes from remuneration for independent personal services, and any author?s remunerations or royalties.
(B) Tax-exempt Income.
(C) Standard 60,000 Yuan deduction.
(D) Any kind of itemized deductions such as medical insurance, pension insurance, housing provident funds paid by individual residents, and unemployment insurance.
(E) 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.
(F) Qualified deductions that can include tax-preferential commercial health insurance. Other specific taxes, other fees, annuities, and tax-deferred pension insurance.
(G) 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 2021 IIT returns if you meet these requirements:
1: If your 2021 comprehensive income is higher than 120,000 Yuan and the yearly tax owed is more than 400 Yuan.
2: If the tax you withheld is higher than the payable tax number for 2021 and 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 2021?
The words “tax exempt” is music to most people’s ears. 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 in 2021 if you’ve already had your comprehensive income withheld in 2021, or if you have met one of the below criteria:
(A) The total number of your 2021 comprehensive income is less than 120,000 Yuan.
(B) The tax number you owe is less than 400 Yuan.
(C) The tax you have already withheld in 2021 is the same as your payable tax for the year.
(D) when the right to claim a refund has been waivered.
2021 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 the lowdown on the annual IIT filling timeline and the processes and procedures in place to ensure you get everything done correctly and on time.
When do Resident Foreign Individuals Need to File IIT Returns?
All 2021 Chinese IIT taxes need to be filed between 1 March 2022 and 30 June 2022. IIT returns for the previous year always need to be filled between these dates on the following year. China doesn’t really offer extensions like you might find in the western-world 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 2021 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 2021 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 in 2021, 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 2022. It needs to stipulate they agree to complete the comprehensive income calculations directly with you along with the details of the 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.
2021 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 need to cover all bases, ensure your helmet is tightly secured and there are no gaps that can let in ricochets you didn’t account for.
Check out our 2021 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 calculated on a consolidated basis for sure, which means it might not be taxed on the same level as income made 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 foreigner living and working in China, there are a few tax deductions. The main ones are housing expenses, language training expenses, meal fees, your child’s education expenses, relocation charges, laundry fees, home leave expenses, and business travel expenses.
2021 IIT China Tax Returns ? 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 2021 IIT China tax returns is concerned. If you are a resident foreign individual whose income in China is more than 120,000 Yuan over a tax year, you will need to file your taxes.
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.