In Which Condition should Foreigners File With China’s IIT?

In Which Condition should Foreigners File With China’s IIT?

We are delighted that the New Coronavirus outbreak is now effectively under control, many enterprises are returning to the business at a steady pace.

We would like to kindly remind you of the upcoming first-ever China Annual Individual Income Tax (“IIT”) filing since the IIT reform took place in late 2018. The filing period is from 1 March 2020 to 30 June 2020.

As per the Announcement of the State Taxation Administration (“SAT”) concerning the Annual IIT filing the year 2019, the resident individuals should self-assess whether they should lodge an annual IIT filing for their “comprehensive income” (namely wages and salaries, personal services income, author's remuneration, and royalties) obtained in the calendar year 2019.  In this regard, we have prepared the following guide aimed at preparing your HR and employees for the first time annual IIT filing.

1

Overview of the Year 2019 annual IIT filing

According to the IIT laws, a resident individual (the "taxpayer") shall calculate their 2019 taxable liability based on their comprehensive income derived in 2019, and apply the standard basic deduction of CNY60,000, special deductions, special additional deductions, as well as other allowable deductions (e.g. qualified donations) where appropriate, before using the applicable IIT rates.

The taxpayer should settle any tax payment due upon annual IIT filing. In case of a tax refund, the taxpayer may apply for such refund.

2

When taxpayers need to file annual IIT?

The IIT prepaid by the taxpayer during 2019 exceeds the actual IIT payable amount for the year 2019 upon annual IIT calculation followed by an application for IIT refund, including:

  • Comprehensive income not exceeding RMB 60K but the IIT has been withheld and paid in 2019;
  • IIT withheld from personal services income, author's remuneration and royalties are higher than the actual IIT liability in 2019 ;
  • During the year eligible standard tax deductions and or specific deductions are not reported or fully enjoyed by the taxpayer such children education, continuing education, housing loan interest or rental expense, etc.;
  • Failed to declare or fully enjoy eligible tax deductions in 2019.

The comprehensive income exceeds RMB120k in 2019 and the final tax payment due exceeds RMB400.  For example:

-  If comprehensive income is from two or more sources, and IIT withheld from those sources is below the final tax payable.

3

When taxpayers do not need

to file annual IIT?

  • The comprehensive income does not exceed RMB120k;
  • The final tax payment for 2019 does not exceed CNY400;
  • The prepaid IIT on comprehensive income is equal to the final yearly IITposition in 2019, or the taxpayer does not intend to apply for a refund.

4

Annual IIT filing for 

“Non-resident individual” and“Non-domiciled individual”

1.  According to the Announcement issued jointly by the Ministry of Finance and the SAT on the IIT policy for non-resident individuals and-domiciled individuals in 2019, if an expatriate employee is assessed to be a non-resident in advance but subsequently meets resident individual conditions due to extension of the residence duration to 183 days or more within a calendar year, the IIT calculation method should remain unchanged throughout the calendar year for withholding purpose. After year-end, they shall file an annual IIT in accordance with the relevant provisions of resident individuals.

2.  If an expatriate employee is assessed to be a resident taxpayer in advance, and he/she is expected to leave China without returning in the same year of departure, he/she is required to lodge an annual IIT filling before leaving the country.

Generally speaking, the IIT liability of an expatriate employee would be complicated taking into account their offshore arrangements. It is necessary to consider the expatriate's overseas income, if any, together with their comprehensive income in China. Expatriates and often company HR may be expected to gauge whether the expatriate’s PRC IIT obligations are fulfilled throughout their employment inChina.  This sometimes could be a real challenge.

Further, expatriates often require an annual IIT clearance certificate issued by the competent PRC tax authorities concerning their PRC income, such may be used as one of the important proofs for claiming foreign tax credits in their home country to avoid double taxation.

5

Three ways to lodge an annual IIT filing

1. Self-lodgment: PRC tax authorities provide taxpayers with efficient and fast online tax services.  A taxpayer may handle the 2019 annual IIT filing via such online platforms including an IIT App on mobile phones. Alternatively, taxpayers may lodge the filing by mail or over the counter at the tax office.  When there are two or more sources of employment in 2019, the taxpayer may choose to report all their employment income to the competent tax authority in charge of any one of the respective employer.

2. Lodging via employer: Taxpayers should have a written agreement with the employer before 30 April 2020, agreeing to provide the employer with the complete comprehensive income together with the details on deductions, tax benefits, etc. Taxpayers are held liable for the authenticity, accuracy, and completeness of the information provided.

3. Lodging via agent: Taxpayers may engage a tax services provider to assist with the annual IIT filing. Taxpayers are required to sign an authorization letter with the service provider in this regard.

In the coming weeks, the detailed guidelines are expected to be issued by the SAT. Elite Stage will closely follow the updates and share them with you once available.

Should you require any assistance in the 2019 annual IIT filing, or wish to receive annual IIT filling training, please feel free to get in touch with us.

 

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