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 provisional or final withholding IIT returns with its tax authority on a monthly basis.
For other categories of income, the tax return, either provisional or final, has to be filed on a monthly, annual, or transaction basis, depending on the specific circumstances.
Certain types of residents must file an annual reconciliation tax return on comprehensive income (see Withholding requirements below for more information). The filing period for the annual reconciliation tax return is between 1 March and 30 June 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.
Provisional tax withholding on comprehensive income paid to residents
The payer of employment income, remuneration for labour services, author’s remuneration, and royalties made to residents is generally obligated to perform provisional tax withholding on such income by adopting the required withholding method.
Monthly provisional tax withholding amount is calculated on an accumulative basis with the annual tax table on comprehensive income (see Table I in the Taxes on personal income section). Eligible personal deductions are generally allowed (accumulative monthly amount) in calculating the monthly provisional withholding tax.
The taxpayer can also choose to claim specific additional deductions on one's own through the annual reconciliation tax filing instead of having them included in the monthly provisional withholding tax calculation by the employer.
Remuneration for labour services, author’s remuneration, and royalties
Provisional tax withholding on the above income paid to residents is calculated on a monthly or transaction basis. The following deductions are allowed when calculating the taxable income for provisional tax withholding purpose:
- If the gross receipt is not more than CNY 4,000, a deduction of CNY 800 is allowed.
- If the gross receipt exceeds CNY 4,000, a deduction of 20% is allowed.
- A further deduction of 30% is allowable for author’s remuneration.
Provisional tax at a flat rate of 20% should be withheld from the taxable income of author’s remuneration and royalties.
For income derived from labour services, provisional tax is calculated and withheld based on progressive tax rates ranging from 20% to 40% as below:
|Taxable labour service income (CNY)
||Provisional withholding tax rate (%)
|0 to 20,000
|Over 20,000 to 50,000
Actual tax withholding on employment income, remuneration for labour services, author’s remuneration, and royalties paid to non-residents
Payer of employment income, remuneration for labour services, author’s remuneration, and royalties made to non-residents is generally obligated to withhold IIT by each income category on a monthly or transaction basis at the progressive tax rates in Table II (see Table II in the Taxes on personal income section). Such tax withholding is considered actual and final.
The following types of individuals are obligated to self-report their income to the tax authorities:
- A resident who derives comprehensive income and is required to perform an annual reconciliation tax filing.
- An individual who derives taxable income on which the withholding agent does not perform tax withholding and filing.
- An individual who derives income from outside China.
- An individual who derives taxable income but does not have a withholding agent.
- A non-resident who derives employment income from two or more sources within China.
- An individual who applies to de-register Chinese household due to emigration.
Residents deriving comprehensive income are required to file an annual reconciliation tax return in case of the following:
- A resident who derives comprehensive income from two or more sources with an annual amount exceeding the total of the standard basic deduction (i.e. CNY 60,000) and the specific deductions.
- A resident who derives remuneration for labour services, author’s remuneration, and/or royalties and whose annual comprehensive income exceeds the total of the standard basic deduction (i.e. CNY 60,000) and the specific deductions.
- A resident whose provisional tax withheld from comprehensive income is below the final tax payable thereon.
- A resident who claims tax refund on comprehensive income.
Payment of tax
Generally, the withholding 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.