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Your Individual Income Tax: All You Ever Wanted to Know about Filing your Taxes in China and Never Dared to Ask

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Category: Business in Asia

Your Individual Income Tax:  all you ever wanted to know about filing your taxes in China and never dared to ask

Are you working and living in China? Have you ever thought about your tax duties? If you earn income, you are most likely subjected to individual income tax in China. Navigating the taxation system in the P.R.C. can be quite difficult, especially if you are not a tax expert. Plus, as each person’s tax situation is unique, seeking professional advice is always recommended. You do not want to miss a deadline, or to pay a wrong sum.

With this post, S.J. Grand provides you with an overview of the Individual Income Tax in China focusing on how to file it after 2017’ tax return reform. Also, to make sure you get an idea of your personal payable tax, we recommend to try our Individual Income Tax Calculator out.

Who pays the personal income tax in China?

According to the taxation system in China, Chinese citizens are considered to be domiciled in China as they have economic and personal ties in the country. Therefore, they must always include their worldwide income in the tax filing.

For foreigners (citizens from Hong Kong, Taiwan, and Macau are also regarded as foreigners) considerations vary according to three different aspects:

  1. The source of an individual’s income;
  2. Whether an individual is domiciled in China under Chinese law for tax purposes; and
  3. The length of his/her stay in China.

Foreigners staying in China less than one year

If you are staying in China for less than 183 days in a calendar year, you will not be taxed in the P.R.C. (but you will in your home country). In the case your home country does not hold a double taxation agreement with China, the period is reduced to 90 days.

Foreigners staying in China for one year (or more, but less than five)

Staying in China for more than 183 days (or 90 days, as per the above) makes you a China tax-resident. You are subjected to Chinese taxation, but Chinese Tax Authorities will most likely not consider you as domiciled (if the center of your economic and personal life is still not China) and you will not be liable for worldwide income taxation in China.

Foreigners staying in China for more than 5 years

If the period of your stay exceeds 5 consecutive years, you become fully taxable for your worldwide income in China and you must include it in the annual income filing.

Read our article about China’s 5-Year Tax Rule to understand how to legally escape taxation of your worldwide income.

income source

Table developer: S.J. Grand

Is your income sourced from China?

China’s Individual Income Tax Law recognizes 11 categories of income sourced in China. Specifically, these include:

  • Wages and salaries, which include:
    • Housing fund above the limit stated by Provincial Authorities;
    • Commercial insurance above the limit stated by Provincial Authorities;
  • Income sourced from contracted or leased operations by wholly or partly State-asset-funded enterprises or social services providers;
  • Remuneration for providing services as an individual;
  • Author’s remuneration (e.g. sale of books);
  • Royalties;
  • Interest, dividends, and bonuses (bank interest from individual bank deposit account);
  • Income from sale of shares, stock options;
  • Income from lease of property;
  • Income from transfer of property;
  • Incidental income;
  • Other income deemed to be taxable by the Ministry of Taxes of the State Council.

These categories should be included in the Individual Income Tax Self Reporting.

Do you have to file your personal income tax?

The taxation system in China provides that the employer directly does the Income Tax Reporting on a monthly basis. The employer shall withhold the sum from monthly salaries. In addition to this, the employee must complete the annual tax reporting by him/herself. As it is a fairly complicated procedure, demanding professional help may be the best solution.

On November 8th, 2006, the State Administration of Taxation (SAT) issued the «Trial Individual Income Tax Self Reporting Regulation». According to the regulation, a natural person must submit the annual tax return when meeting one of the 4 following situations:

  1. Has annual income above RMB120.000;
  2. Has two or more sources of income;
  3. Earns income from sources outside the P.R.C.;
  4. Has taxable income without a withholding agent (i.e. the employer).

The annual tax return must be reported in addition to the monthly tax declaration. As China follows the calendar year, the return date will be March 31st of the following year. For 2017, the deadline is March 31st, 2018.

How to file the annual income tax in China?

Since 2017, significant changes have been applied to the individual income tax return procedure (also called IIT 120K return procedure). The regulatory environment in China is constantly changing: being up-to-date can be stressful for expats.

Previously, the tax bureau only accepted paper filing via onsite declaration.

Now, the tax bureau accepts the annual individual income tax return via online declaration. Hence, the Chinese tax officer will not accept any paper filing for the annual return, unless an acceptable explanation is provided.

To ease the new procedure, employees can use three systems to directly declare the annual income tax online:

  1. Alipay, with a verified account;
  2. Wechat pay;
  3. Official website of the city’s tax authorities.

As the Tax Bureau only provides Chinese interface, foreign employees may face some difficulties at first.

Shanghai tax bureau

Source: Shanghai Tax Bureau Wechat Official Account

For Chinese citizens (and for foreigners who own a verified Alipay/Wechat account and read the Chinese language) the new procedure is fast and easy, as they “just” need to enter their account. But, for non-Chinese-speaking employees the procedure could get complicated and time-consuming:

  • Go to the tax bureau to obtain the registration code to enter the tax online system;
  • Register in the tax online system;
  • Login;
  • Fill the information for the annual IIT return in the tax online system.

Tax consultants can help you not only to carry out the procedure, but also to evaluate your specific tax situation. There are indeed more conditions that can modify your liability in China (i.e. your position in a company, double taxation agreements, non-taxable benefits, …).

You don’t want to run out of money because of a wrong tax estimation, or because you missed the tax declaration deadline. China can apply severe fines to dodgers.

Refer to our individual income tax calculator for a quick computation and call us for a tax consultation.

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