China IIT Annual Reconciliation – Your Tax Due Payments FAQ Answered
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. June 30 is the standard deadline for IIT’s annual reconciliation process. To help taxpayers smoothly declare their IIT status and complete the annual IIT reconciliation, we have discussed questions about tax refund in our article published in May 2022. In this new article, we provide information based on our daily consultations with clients regarding the payment of taxes due. For more questions, please contact Karen Liu, Partner, CAS, Guangzhou Office.
Q1. I am a foreigner and worked in China for the whole of 2020. I worked for less than a year in 2021, leaving China at the end of March 2021. My salary was 10,000 RMB per month during the whole period . Will this situation have an impact on the calculation and payment of my IIT 2021? Does this situation involve a tax return or a tax due? How should I file it?
There are two types of tax ID for foreigners working in China and each has its own method of calculation.
Simply put, those who stay in China for more than 183 days will be considered residents, while those who stay for less than 183 days will be considered non-residents. The company where the foreigner is employed will assess and estimate the expatriate’s “days in China” and choose the tax identity at the beginning of the year.
In your case, you were initially considered a resident natural person with regard to your tax identity in 2020 (the cumulative period in China is greater than 183 days in 2020). Whereas in 2021, you stayed in China for less than 183 days. Your tax identity will therefore change from resident natural person to non-resident natural person.
The calculation for the two tax identities being different, it is possible to have tax due. For resident individuals, the IIT is calculated on the cumulative salary and uses the overall annual tax rate. In general, resident individuals are subject to lower tax rates in the first few months of the year and then subject to higher tax rates later in the year as accrued salary increases. The IIT for non-resident individuals is calculated on each month’s salary and uses the monthly tax rate on overall income.
Thus, at the withholding stage, you were considered a resident individual and subject to a tax rate of less than 3%. The total IIT payable was 450 RMB. However, your IIT will be recalculated using the non-resident individual method and you will be subject to a higher tax rate of 10%. Thus, the total IIT to be paid will be 870 RMB. Therefore, the due tax of 420 RMB is attributed to the change of tax identity.
|Month||Income (RMB)||IIT for non-resident individuals (RMB)||Tax rate||IIT for Resident Individuals (RMB)||Tax rate|
In these circumstances, you must report to the competent tax authority within the period from the day he does not meet the criteria for individual residence to 15 days from the end of the year. Your IIT will be recalculated and all taxes due will need to be paid.
Q2. I am a foreigner. I worked for company A (in China) in the first half of 2021 with a monthly salary of 10,000 RMB, and I worked for company B (in China) in the second half of 2021 with a monthly salary of 15,000 RMB . Is it possible that I have taxes due?
Companies act as withholding agents and will withhold tax monthly.
When you moved to Company B, Company B assumes that July 2021 is the start month for your earnings. Without aggregating your income from Company A, your cumulative income was zero when Company B started calculating your IIT and you were subject to a lower tax rate.
During the annual IIT reconciliation, your income from Company A and Company B will be combined for the calculation, and you will be subject to higher tax rates and will be required to pay the tax due. The calculation is shown below.
When company A and company B calculated separately, the IIT retained in total was 4,380 RMB:
|Monthly income (RMB)||Number of months||Total income (RMB)||Total deduction (RMB)*||Taxable income (RMB)||ITI||Tax rate|
(January to June 2021)
(July to December 2021)
*Here we only consider the standard deduction, which is 60,000 RMB per year. In practice, it is possible that there are other types of deductions, such as special deductions (individual contributions to social insurance and housing fund), additional special deduction (education of children, continuing education, medical care for serious illness, interest on housing or rent loans, elderly care charges, etc.), and tax-exempt social benefits for foreigners.
After reconciling the IIT, the recalculated IIT payable is RMB 6,480:
|Company A’s taxable income||30,000|
|Company B taxable income||60,000|
|Total taxable income||90,000|
|ITI to pay||6,480|
That is, the due tax of RMB 2,100 must be paid.
Q3. I am a foreigner. I worked for company A in 2021 and my monthly salary was 20,000 RMB. I also provided labor services to company B for the whole year, and my monthly service fee was 20,000 RMB. Is it possible that I have taxes due?
Yes, salaries and wages, labor compensation, author’s compensation and royalties are reported separately at the withholding stage, but must all be combined into the overall result during the final IIT reconciliation. After combining, you may be subject to a higher tax rate.
At the withholding stage, Company A has withheld IIT for salary and Company B has withheld IIT for labor service separately. The two companies withheld 57,480 RMB IIT in total.
IIT on company A’s salary income
|Monthly income (RMB)||20,000|
|Total income (RMB)||240,000|
|Taxable income (RMB)||180,000|
|Total retained IIT (RMB)||19,080|
Service charges withheld by company B
|Paid Monthly Service Fee (RMB)||20,000|
|Deduction per month (RMB)||4,000|
|Taxable income per month (RMB)||16,000|
|IIT per month (RMB)||3,200|
|Total IIT for service charge (RMB)||38,400|
In the annual IIT reconciliation, the taxpayer is taxed by aggregating both wage income and labor service income on an annual basis. Income is combined and subject to a higher tax rate of 25%. For the whole year, the IIT payable is 61,080 RMB.
You will have to pay a tax due of 3,600 RMB.
|Labor Service Taxable Income (RMB)||16000*12=192000|
|Taxable wage income (RMB)||180,000|
|Total taxable comprehensive income (RMB)||372,000|
|IIT payable in total (RMB)||61,080|
Q4. What are the consequences if the tax due is not paid on time? If there was a late tax payment from the 2020 ITI Annual Reconciliation, will this affect my 2021 ITI Annual Reconciliation?
If the individual does not complete the annual IIT reconciliation and payment on time (i.e. before June 30 of each year, unless otherwise stipulated), the tax administration will send a reminder. Where the circumstances are serious, individuals could be held liable, and this will be recorded in the individuals’ personal tax credit records.
In addition, for individuals who do not pay their owed taxes on time, they will have to pay late fees at the daily rate of 0.05% and may be subject to additional fines.
These individuals are not eligible for the 2021 IIT Annual Reconciliation until they have completed the 2020 IIT Annual Reconciliation and paid the withheld tax.
The annual IIT reconciliation is one of the most common areas of concern and confusion among taxpayers. It is recommended that individual taxpayers make the annual settlement of the IIT before the required deadline. For taxpayers who have taxes owed, it is recommended that they pay the tax owed on time in accordance with the applicable regulations, in order to avoid unnecessary late fees, fines and the negative impact on their personal credit file. .
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]
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