In China, the deadline for filing the individual income tax return (IIT) application is June 30th of the following year. That is to say, you have until June 30th this year to get your taxes for the year 2022 straight if you are a resident of China OR generate profits in China as a non-resident.
The good news is you can file your income tax return online through the Chinese government’s application: 个人所得税 or “Individual Income Tax” app in English.
The bad news is you can only file your income tax returns online through the application and it is not the easiest application to work with and is only available in Chinese.
In this article, we will provide a comprehensive guide to filing an IIT return in China, covering everything from eligibility, calculation, preparation to the filing process and tax deductions. Whether you are a Chinese citizen, a foreign national, or a self-employed individual, this guide will help you navigate the IIT system and ensure that you meet your legal obligations.
What is the Individual Income Tax Return in China?
Individual Income Tax (IIT) return in China is the process of reporting one’s taxable income and paying the corresponding tax owed to the government. Filing an IIT return is a legal obligation for individuals who earn income within the country, and failure to do so will result in government nagging and eventually penalties and fines. The IIT system in China is based on a progressive tax rate system, meaning that the tax rate increases as the taxable income increases. The IIT return filing process requires individuals to calculate their taxable income, take advantage of available deductions and exemptions, and report their tax liability to the relevant tax authorities.
Upon completion of the Individual Income tax return, taxpayers will either qualify for a tax refund, owe additional tax or neither, signifying that there is no error in the income taxes paid for the year.
Who Needs to File Individual Income Tax Return in China?
Individuals are required to file an individual income tax (IIT) return if their taxable income exceeds the annual exemption threshold. The annual exemption threshold for IIT in China is RMB 60,000 for residents and RMB 90,000 for non-residents. Residents of China are considered to be individuals who have lived in the country for more than 183 days in a tax year, while non-residents are considered to be individuals who have lived in China for less than 183 days in a tax year.
Individuals who receive income from wages, salaries, bonuses, rental income, and various other sources may be required to file an IIT return in China, even if their taxable income does not exceed the annual exemption threshold. Additionally, individuals who are self-employed or engage in freelance work must also file an IIT return in China.
What is a Tax Resident
A tax resident in China is an individual who has lived in the country for 183 days or more in a tax year or has a permanent dwelling in the country. Tax residency is an important factor in determining an individual’s liability for IIT, as tax residents are required to pay IIT on their worldwide income, whereas non-residents are only required to pay IIT on their China-sourced income.
Individuals who possess Chinese citizenship or non-Chinese citizenship and have spent 183 or more days in China within a tax year are considered residents for the purpose of individual income tax (IIT). As residents, they are generally liable for IIT on their worldwide income.
Individuals who do not reside in China and spend less than 183 days in the country during a tax year are classified as non-residents for individual income tax (IIT) purposes. Non-residents are only responsible for IIT on income generated from within China.
Taxable Income Sources
The following types of income are subject to IIT: wages and salaries, bonuses, business income, rental income, and other taxable income such as dividends, capital gains, and interests. It’s important for individuals to accurately report their taxable income, as the tax liability is calculated based on this information.
Threshold for Tax Filing Obligation
In China, individuals with a taxable income of more than RMB 120,000 per year are required to file an IIT return. However, even if an individual’s taxable income is below the threshold, they may still choose to file an IIT return in order to claim tax deductions and exemptions. It’s important to check with the relevant tax authorities for the most up-to-date information on the IIT filing obligation, as the threshold may change from time to time.
Types of taxable income
The following types of income are subject to individual income tax (IIT) in China:
- Wages and salaries
- Income from personal service
- Author’s remuneration
- Business income
- Income from interest, dividends & profit distribution
- Rental income
- Income from the transfer of property
- Incidental income
The first four types of income should be combined for the purpose of calculating annual taxable income:
- Wages and salaries
- Income from personal service
- Author’s remuneration
Note that each type of income is subject to a different tax rate. For example, the IIT threshold for wages and salaries is set at RMB 5,000, as specified by the China Individual Income Tax Law.
The recent update to the tax rate has broadened the base tax brackets, enabling taxpayers to benefit from varying degrees of tax reductions. To determine the applicable tax rate for your income level, please refer to the tables provided below.
Individual Income Taxes for Self-Employed Individuals & Freelancers
Self-employed individuals and freelance workers are subject to individual income tax (IIT) on their earnings just like any other type of taxpayer. The process for filing IIT returns for self-employed individuals and freelance workers is similar to that of other taxpayers, but with a few additional steps.
Self-employed individuals and freelance workers are considered to be in business for themselves and are responsible for registering their business and obtaining a business license. They are also required to keep accurate records of their business income and expenses, which will be used to calculate the amount of IIT owed. In some cases, self-employed individuals and freelance workers may need to register for value-added tax (VAT) in addition to IIT.
When it comes to filing IIT returns, self-employed individuals and freelance workers will need to calculate their taxable income by subtracting any legitimate business expenses from their gross income. This taxable income will then be used to determine the amount of IIT owed. In some cases, self-employed individuals and freelance workers may be eligible for tax deductions or credits that can reduce their tax liability.
It is important to note that self-employed individuals and freelance workers are responsible for accurately reporting their income and paying their taxes on a timely basis. For a free consultation regarding complicated IIT returns, please contact us!
Income Tax Deductions and Exemptions
The revised China individual income tax (IIT) law places a significant emphasis on tax deductions. Taxpayers can take advantage of various deductions to reduce their taxable income and minimize their tax liabilities.
The deductions available under the new IIT law include the existing “special deductions” and “other deductions”, as well as the newly introduced “cumulative special additional deductions” which took effect on January 1, 2019.
The “special deductions” encompass four categories, namely: basic endowment insurance, basic medical insurance, unemployment insurance, and housing accumulation fund. On the other hand, the “other deductions” category includes annuities, commercial health insurance, tax-deferred pension insurance, original value of property, and taxes and fees that are deductible.
Additionally, the specific additional deductions that took effect in January 2019 cover areas such as children’s education and rent. According to the IIT legislation, residents are eligible for the following non-refundable and non-transferable personal deductions when determining their taxable comprehensive income:
Itemized Deductions in China
|Deductible item||Applicability||Deductible amount (CNY)|
|Child education||Pre-school education- Primary school education- Middle school education- High school education- Higher education (Bachelors, Masters, PHD…)||1,000 per child per month|
|Formal education||Formal education – Professional education||Formal – 400 per month for a maximum of 48 monthsProfessional – 3,600 per year with certificate as proof|
|Mortgage interest||Limited to 1st property only||1,000 per month for up to 20 years|
|Rental expense||Applicable for each rented property||Major cities (T1 & T2) = 1,500 per monthPopulation > 1,000,000 = 1,100 per monthPopulation < 1,000,000 = 800 per month, 1,100, or 1,500 per month|
|Elderly care||Parents or other dependable over 60 years old||Up to 2,000 per month per dependable|
|Major medical expense||Medical expenses > 15,000||Based on self-paid portion above 15,000 and capped at 80,000 per year for each eligible individual|
Under the provisions of the PRC Individual Income Tax (IIT) Law, individual taxpayers have the option to either declare their deductions themselves when making the annual reconciliation filing or to have their employer make preliminary deductions on a monthly basis. If the latter option is chosen, the individual taxpayer must confirm any changes to their itemized deductions by December of the fiscal year and bears responsibility for ensuring the authenticity, accuracy, and completeness of the information provided when claiming deductions.
Income Tax Deductions and Exemptions for Foreigners
In an effort to attract foreign talent, the government has established special additional allowances for expatriates as well as residents from Hong Kong, Macao, and Taiwan. These allowances may amount to 30-35% (depending on location) of salary and are subject to proof of authenticity through the provision of fapiaos. The tax bureau has discretion to determine the reasonableness of expenses. Non-taxable allowances are divided into categories such as housing rent, children’s education expenses, language training, home flight, meal and laundry expenses, and relocation expenses.
However, starting from 2022, expatriates will no longer be able to claim all of the tax-exempt allowances and will be subject to the same laws as Chinese taxpayers, requiring them to follow the itemized deductions model for non-taxable allowances. Currently, foreign employees may opt for the itemized deductions model, for which they must visit their local tax office for registration.
Note that if foreign employees choose the itemized deductions model, they will not be able to use any of the tax-exempt expatriate allowances within the same fiscal year. As the existing benefits for expatriates generally favor the individual taxpayer, it may not be advantageous to claim the itemized deductions until the change in law takes effect.
Taxation for Foreigners: Expat Residency Clarification
Foreign nationals and residents from Hong Kong, Macau, and Taiwan are taxed based on their physical presence in China. The following are the tax implications for foreign nationals:
- Foreign individuals who spend less than 183 days in China in a tax year will only be taxed on their income earned in China.
- Foreign individuals who spend 183 days or more but less than six consecutive years in China will be taxed on both their China-sourced and foreign-sourced income.
- If a foreign individual lives in China for 183 days or more per year for over six consecutive years, they will be subject to Individual Income Tax (IIT) on their worldwide income starting from the seventh year if they continue to stay in China for 183 days or more annually. The six-year count will be reset if a foreign individual spends more than 30 days outside of China in any tax year.
- Foreign individuals who do not reside in China for more than 90 days in a calendar year will be tax-exempt if they earn income from an overseas employer. However, this rule can be expanded to 183 days during a calendar year or any 12 consecutive months if the individual is a tax resident of a country/region that has signed a tax treaty/arrangement with China, subject to the provisions of the treaty/arrangement.
How to Calculate the Days of Residence in China for Foreigners (including HK, Macao, and Taiwan Residents) As per the provisions of the law, the number of days of residence in China will be calculated as 24 hours for each day spent in China. If the stay in China is less than 24 hours, it will not be counted as a day of residence in China.
Tax Exemptions for Foreigners’ Length of Stay in China In an effort to attract foreign investment, encourage foreign nationals to work in China, and promote foreign exchange, the Regulations on the Implementation of the Individual Income Tax Law has introduced a preferential tax exemption system for overseas income paid by overseas investors in previous regulations and relaxed the conditions for tax exemption.
First, individuals who do not have a domicile in the People’s Republic of China and have stayed in China for a cumulative period of 183 days but less than six years shall be exempt from individual income tax on their income derived from sources outside of China and paid by units or individuals outside of China upon filing with the competent tax authorities. The distinction between “cumulative” and “continuous” is important to this provision.
If a foreign individual stayed in China for 183 days in total, the cumulative period can be continued in the same year. However, if they stayed less than 183 days in one of the previous six years, the cumulative period cannot be continued, and the number of years must be recalculated starting from the year after the interruption. For example, if a foreign individual lived in China for 183 days in 2019 and 2020 but lived in China for only one month in 2021, the consecutive years should be recalculated from 2022.
Second, the number of consecutive years of residence will be recalculated every year as long as there is one departure from China for more than 30 days. For example, if a foreign individual lived in China continuously for more than 183 days in 4 years but left China for more than 30 days in the fifth year, the number of days should be recalculated from the next year.
Third, China has signed bilateral tax agreements or arrangements with over 110 countries and regions to some extent avoid the possibility of double taxation for taxpayers. If any relevant issues arise, the individual income tax for foreigners will be determined according to the specific provisions of the tax agreement.
Calculating Taxable Income
Personal Income Tax Rates (Yearly Income)
(Applicable individuals resident in China)
|Bracket||Annual Taxable Income (CNY)||Tax Rate||Quick Tax Deduction (CNY)|
|1||Up to 36,000||3%||0|
|2||Between 36,000 and 144,000||10%||2,520|
|3||Between 144,000 and 300,000||20%||16,920|
|4||Between 300,000 and 420,000||25%||31,920|
|5||Between 420,000 and 660,000||30%||52,920|
|6||Between 660,000 and 960,000||35%||85,920|
Personal Income Tax Rates (Monthly Income)
(Applicable to non-residents. For non-residents, the individual income tax is calculated on a monthly or transaction basis.)
|Bracket||Monthly Taxable Income (CNY)||Tax Rate||Quick Tax Deduction (CNY)|
|1||Up to 3,000||3%||0|
|2||Between 3,000 and 12,000||10%||210|
|3||Between 12,000 and 25,000||20%||1,410|
|4||Between 25,000 and 35,000||25%||2,660|
|5||Between 35,000 and 55,000||30%||4,410|
|6||Between 55,000 and 80,000||35%||7,160|
Individual Income Tax Calculations
Taxable Income Formulas:
Taxable income = (Total income) – (Initial deduction) – (Special additional deduction/Tax-deductible allowance (especially for foreigners)
Tax payable = (Taxable income*Tax rate) – (quick deduction)
Sample Individual Income Tax Calculation
Let’s create a fictional character, Mr. Ford, the managing director of a fortune 500 company based in China. Mr. Ford’s annual taxable income after deduction and exemption is 2 million CNY.
Let’s calculate his Income tax on 2,000,000 CNY using the formula: Tax payable = (Taxable income*Tax rate)
Bracket 1 – 0 to 36,000 ( 36,000*3%) = 1,080
Bracket 2 – 36,000 to 144,000 (108,000*10%) = 10800
Bracket 3 – 144,000 to 300,000 (156,000*20%) = 31,200
Bracket 4 – 300,000 to 420,000 (120,000*25%) = 30,000
Bracket 5 – 420,000 to 660,000 (240,000*30%) = 72,000
Bracket 6 – 660,000 to 960,000 (300,000*35%) = 105,000
Bracket 7 – 960,000 to 2,000,000 (1,040,000*45%) = 468,000
Total = 1,080+10,800+31,200+30,000+72,000+105,000+468,000 = 718,080
718,080CNY of income tax due on an annual gross salary of 2 million CNY.
Mr. Ford realizes that everything he makes past 960,000CNY is being taxed at 45%. He should have opted for a different salary structure with stock options.
Individual Income Tax Return Filing Process
To complete your individual income tax (IIT) registration and inquiry on the Apple Store, follow these steps:
- Launch the Apple Store and search for “个人所得税” (Individual Income Tax).
- Once you have located the IIT app, select the city or region where you have registered your residence.
- Upon selecting your location, you will be presented with several registration options. Choose the second option, which is face recognition registration.
- You will then be prompted to complete your personal information, including your certificate type, ID number/passport number, name, nationality, and a verification code.
- After completing the above information, you will be asked to provide additional details, such as your username, password, phone number, verification code, and household registration region.
- Once you have completed the registration process, you will have access to the third option under the common business section for IIT details inquiry.
- To retrieve your IIT information, select the tax year and type of personal income that you would like to inquire about.
By following these steps, you will be able to efficiently complete your IIT registration and inquiry on the Apple Store.
Assistance from tax professionals for Complex Incomes
Professional tax consultants can provide invaluable assistance to individuals who are faced with the task of filing complex non-salary income tax returns in China. Our FDI China Tax Consultants have a thorough understanding of the tax laws and regulations in China, and can help individuals navigate the often-complex tax reporting requirements for various types of non-salary income, such as rental income, business income, income from the transfer of property, and royalties, among others.
Additionally, tax consultants can assist in the calculation of taxes owed, provide guidance on available tax deductions and credits, and ensure that all necessary documentation is complete and accurate. By utilizing the services of a professional tax consultant, individuals can minimize their tax liabilities and reduce the risk of errors, which could result in fines or penalties. Ultimately, professional tax consultants can help individuals to effectively manage their tax obligations and ensure compliance with the regulations in China.
CONTACT US for a FREE individual income tax return consultation