China's tax year runs from 1 January to 31 December, but tax filing is generally administered on a monthly basis.
For employment income, the employer is obligated to file the withholding IIT returns with its tax authority on a monthly basis.
For other categories of income, the tax return has to be filed on a monthly, annual, or transaction basis, depending on the specific circumstances.
Certain types of individuals must file annual IIT returns (see Withholding requirements below for more information). The annual tax return is due by 31 March of the following year.
There is no joint tax return in China. Husbands and wives are assessed and taxed separately.
Tax returns must be filed on a timely basis. Extensions to file may be granted under 'special circumstances' only.
The payer of income is usually obligated to withhold the IIT payable upon payment of taxable income to the payee. Where the payer fails to withhold the full amount of IIT payable, it is the payee who is ultimately liable for the IIT payable and responsible for filing of the tax return and settling the IIT payable with the tax authority.
The following types of individual taxpayers are obligated to self-report their income to the tax authorities:
- An individual who derives annual income of CNY 120,000 or more.
- An individual who derives salary and wages from two or more sources within China.
- An individual who derives income from outside China.
- An individual who derives taxable income but does not have a withholding agent.
Payment of tax
Generally, the IIT return should be filed and IIT payable should be settled by the 15th day of the month following the income receiving month.
For employment income, the employer is obligated to withhold and settle the IIT payable generally within 15 days after the end of each month.
A surcharge of 0.05% per day for all taxes, including IIT, will be assessed on delinquent payments, pursuant to the China Tax Administration and Collection Law.
There is no fixed audit cycle in China. Tax audit targets are selected pursuant to certain criteria.
Statute of limitations
For unintentional errors (e.g. calculation errors) committed by the taxpayer/tax withholding agent in the tax filing, the statute of limitations is three years and extended to five years if the amount of tax underpaid is CNY 100,000 or more. There is no statute of limitations for tax evasion, refusal to pay tax, or defrauding of tax payment.
Topics of focus for tax authorities
- Non-employment income derived by individuals with real estate investment, mining resources investment, private equity, and investment through trust.
- Employment income (including share-based incentives) derived by individuals in high-income industries.
- Reconciliation of staff expenses with IIT withholding for employers in high-income industries.
- Tax evasion via illegal offsetting of employment income by fapiaos (receipts), such as non-taxable fringe benefits for foreign employees that are not properly implemented.
- Enhancing the database of foreigners' earnings by country, industry, and grade for detection of cases of underreporting.
- More effectively use of the information exchange provision in the income tax treaties to recover IIT on offshore income earned by those individuals who are subject to IIT on their worldwide income.
- Reviewing IIT compliance in relation to deemed permanent establishment/fixed base in order to detect abuse of tax treaty benefits by foreign individuals.