China Personal Income Tax Annual Reconciliation – Tax Refund FAQ

April, May and June are the peak season in China for the annual personal income tax (IIT) reconciliation, or the annual IIT settlement, as it is commonly known. To help taxpayers smoothly declare their IIT status and complete the annual IIT reconciliation, we will publish a series of articles to answer some of the most frequently asked questions we encountered during our daily consultations. with customers. This article will try to cover questions about tax refunds. Follow us so you don’t miss our next Q&A session on tax credits.

Q1. I am a foreigner working in China. Do I have to perform an annual ITI reconciliation or are only Chinese citizens required to do so?

IIT’s annual reconciliation is a process applied to individual taxpayers on their aggregate income (combined income of an individual in wages and salaries, compensation for labor services, author’s compensation and royalties), to ensure that the IIT paid in the previous tax year is correct.

Under Chinese tax laws and regulations, persons who stay in China for 183 days or more in a calendar year are considered resident taxpayers and must complete the annual IIT reconciliation process during the period from 1 March to June 30, whether Chinese or foreign. .

To be more detailed, the annual IIT reconciliation applies specifically to resident taxpayers in the following scenarios:

  • Taxpayers who derive aggregate income from two or more sources, and the balance after deducting special deductions (i.e. compulsory social insurance and housing fund) of the amount of annual aggregate income exceeds RMB 60,000 ( US$8,962);
  • Taxpayers who derive one or more items of aggregate income from author’s labor services, remuneration or royalties, and the balance after special deductions of the amount of annual aggregate income exceeds RMB 60,000 ( US$8,962);
  • Taxpayers who have paid an amount in advance during a tax year that is less than the amount of tax payable; and
  • The taxpayer requested a tax refund.

Note, in practice, the annual IIT reporting process is sometimes called “reconciliation”. Foreigners will also need to be careful with this process if they fall into any of the following circumstances:

  1. The taxpayer derives income from two or more sources, changes companies or takes a job gap during the tax year.
  2. The taxpayer obtained varies the type of income (eg obtaining both wages and salaries, labor services, royalties in a tax year).
  3. The taxpayer obtains taxable income but there is no withholding agent, or the withholding agent does not withhold tax or does not withhold tax properly.
  4. The taxpayer obtains income abroad.

Q2: I’m from the United States. The head office (in the United States) sent me to work in China. Initially, I only planned to work for three months, but ended up staying in China for the whole year. Will this situation affect my IIT? The salary is paid by the Chinese subsidiary, will there be a possibility of tax refund? (The monthly salary in the first semester is 10,000 RMB and increased to 20,000 RMB in the second semester).

For foreigners, the “number of days of stay in China” will affect tax identity (tax residents vs. non-tax residents), IIT calculation and reporting. If you stay in China for more than 183 days, you will be considered a Chinese tax resident and therefore your tax identity will be changed from non-tax resident to tax resident. Since the calculation of the two tax identities is different in China, you may be able to obtain a tax refund.

The IIT for tax non-residents is calculated on the basis of each month’s salary and adopts the monthly rate of global income tax. For tax residents, the IIT is calculated on the accumulated salary and adopts the overall annual tax rate. As the IIT is based on accrued salary, tax residents will be subject to a lower rate of tax at the start and then will be subject to higher tax rates as salary accumulates per month.

Depending on your situation, under the tax resident reporting method, you will be subject to a lower tax rate on a full-year basis and be entitled to a tax refund of RMB 1,800. The annual IIT for tax non-residents will therefore be RMB 11,280 (at the overall tax rate of 15%) while the annual IIT for tax residents will be RMB 9,480 (at the overall tax rate of 7%).

Month Revenue IIT non tax resident Tax rate IIT tax resident Tax rate
1 10000 290 ten% 150 3%
2 10000 290 ten% 150 3%
3 10000 290 ten% 150 3%
4 10000 290 ten% 150 3%
5 10000 290 ten% 150 3%
6 10000 290 ten% 150 3%
7 20000 1590 20% 1080 ten%
8 20000 1590 20% 1500 ten%
9 20000 1590 20% 1500 ten%
ten 20000 1590 20% 1500 ten%
11 20000 1590 20% 1500 ten%
12 20000 1590 20% 1500 ten%
180000 11280 15% 9480 7%

Q3. I am a foreigner. I started working in China in March 2021, but haven’t worked for the whole year. My monthly salary is 10,000 RMB. Will this situation affect my IIT? Is there a possibility of refund?

IIT is levied on taxable income, i.e. earned income less allowable deductions. The basic deduction allowed for the taxpayer is 5,000 RMB per month, or 60,000 RMB for one year.

An incomplete period of work throughout the year can lead to inadequate deductions, which in turn leads to increased taxable income and overpayment of taxes.

Suppose you have worked in China for 10 months, in the pre-declaration, then you would only deduct 10 months of base deduction, which is 10 × 5,000 = 50,000. However, the base deduction for all l year is 60,000, because additional income of 10,000 RMB is taxed. Through the annual reconciliation of IIT, you can get a tax refund of 1,000 RMB.

  • Pre-declaration = (100,000-50,000) × 10% – 2,520 = 2,480
  • Annual reconciliation = (100,000-60,000) × 10% – 2,520 = 1,480

Personal income tax = (income – deduction) × tax rate – quick deduction

In addition to the basic deduction of 60,000 RMB, various types of expenses can also be deducted. These include social insurance, housing funds, children’s school fees, continuing education, medical care in case of serious illness, interest on housing loans or rent, expenses for help for the elderly, etc. If these expenses are not deducted, it is likely that you can get a tax refund.

Q4. I offered patent rights (of a software) to a company, and they paid me a one-year royalty of 100,000 RMB and a one-time consulting fee on using the software of 10,000 RMB . Besides that, my salary was 360,000 RMB in 2021. Do royalty and consultancy payments also need to be reported in the annual IIT reconciliation?

Yes, salaries, wages, labor compensation (including consulting service fees), author compensation, and royalties must all be combined to calculate the final IIT to be paid for all year. For your case:

The company withheld 69,680 RMB in IIT. Each type of income is calculated separately and taxed at a different rate.

Revenue Deduction Taxable income ITI Tax rate
Royalties 100,000 20,000 80,000 25,000 40%
Consultation 10,000 2,000 8,000 1,600 20%
Salary 360,000 60,000 300,000 43,080 20%
388,000 69,680

For the whole year, the IIT payable is 65,080 RMB. Income is combined and subject to a lower tax rate.

Rising Article
Comprehensive taxable result 80,000 Royalties
8,000 Consultation
300,000 Salary
Total 388,000
ITI 65,080
Tax rate 25%

Through the annual reconciliation of IIT, you can get a refund of 4,600 RMB.

Q5. If I am entitled to a tax refund, how will I be reimbursed?

Taxpayers can get tax refunds through the IIT app (个人所得税 app).

Individuals are required to provide correct credit card information at time of reporting. The bank card added for tax refund formalities must be a Chinese bank account, and we recommend that taxpayers use type I accounts (Type I accounts are full-function bank settlement accounts and bank cards with functions such as deposits and withdrawals, money transfers, payments, cash withdrawals, etc.). The bank account should preferably be an account that you can use regularly to ensure that it can accept transfers. The tax refund will then be deposited into the account after review and approval by the tax authorities, which takes approximately four to seven days.

It should be noted that tax authorities will never ask taxpayers to provide bank details or other relevant information via SMS, phone calls or unofficial apps. Be aware of any such requests for information, as scammers have been known to impersonate government officials to gain access to personal information and bank details.

IIT Grants in the GBA

If you have encountered a situation similar to the ones described above, you can try submitting an annual IIT reconciliation and claiming a tax refund. In addition to IIT reimbursements, after submitting the annual IIT reconciliation, foreign taxpayers working in the Greater Bay Area of ​​Hong Kong-Macao-Guangdong (GBA) may also be eligible for IIT grants. IIT. In previous years, the IIT grant was launched one or two months after the close of the annual IIT tax reconciliation.

About Us

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors in China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen and Hong Kong. Please contact the company for assistance in China at [email protected]

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, USA, Germany, Italy, India and Russia, in addition to our business research facilities along the Belt & Road Initiative . We also have partner companies helping foreign investors in the Philippines, Malaysia, Thailand and Bangladesh.

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