Annual Individual Income Tax (IIT) Reconciliation

What is it?

According to the Individual Income Tax Law, domicile residents (hereinafter referred to as "taxpayers") need to handle the individual Annual Individual Income Tax (IIT) Reconciliation of 2019 by calculating the tax payable of the current fiscal year. 

How to calculate?

The final tax payable of 2019 is calculated by reducing the tax prepaid in 2019, the tax refundable (if available), and then the amount needs to be declared to the tax authorities and the tax refund or complementation shall be settled. 

Tax refundable or supplemented in 2019 = [(comprehensive income (i) – RMB 60,000 (ii) – “three insurances and one fund” (iii) as special deduction - special additional deduction (iv) - other deductions determined by law - donation) × applicable tax rate - quick calculation deduction amount] - tax prepaid in 2019

(i) It includes remuneration from wages and salaries, service remuneration, manuscript remuneration, royalties;

(ii) It is the annual amount of standard deduction (RMB 5,000 x 12);

(iii) It includes pension, medical insurance, unemployment insurance and housing fund;

(iv) It includes children education, serious diseases, mortgage on housing loan or housing rent, tuition fees and parents aged 60 or above.

According to the Individual Income Tax Law, the IIT annual reconciliation of 2019 only calculates and settles the refundable or supplementary taxes of the comprehensive income of the current year, which does not involve the previous or future.

Who should do it?

Taxpayers are required to do annual settlement if any of the following condition is satisfied:            

(i) in 2019, the prepaid tax is greater than the annual tax payable;

(ii) when the tax prepaid does not include or fully include the deduction, special deduction, special additional deduction, other deductions or donations determined according to law;        

(iii) in 2019, the comprehensive income is higher than RMB 120,000 and the amount of complementary tax to be paid is higher than RMB 400.

If taxpayers have paid IIT in advance according to law in 2019 and meet one of the following conditions do not need to do the annual settlement:

(i) the annual comprehensive income of the taxpayer does not exceed RMB 120,000;

(ii) the amount of tax to be paid for the annual settlement of the taxpayer does not exceed RMB 400;            

(iii) where the amount of tax paid in advance by a taxpayer is the same as the amount of tax payable in the year, or the taxpayer does not apply for an annual tax refund.

When taxpayer should do the declaration?

Taxpayers need to handle the individual annual tax settlement of 2019 from March 1 to June 30, 2020.

How to proceed with the declaration?

There are several ways to proceed the IIT Reconciliation:

(i) it can be handled by the taxpayer (through the tax bureau’s website or mobile app, in person or by email);

(ii) the withholding agent from which the taxpayer obtains wages and salaries or other income can handle it on behalf of the taxpayer;

(iii) entrust tax related professional service.

What if a taxpayer receives income from abroad?

Foreigners who reside in mainland China for six consecutive years will be subject to taxation on their worldwide income nonetheless, if they spent more than 30 consecutive days at any point during the six years, the computation restarts (six years rule).

Therefore, if a taxpayer has received income from abroad needs to:

(i) declare the revenue without being taxed if he has followed the six years rule;

(ii) declare the revenue and submit the original payment receipt issued by the tax authorities abroad if he has resided in china for over 6 consecutive years.