China Tax Updates : Individual Income Tax

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There was a workshop in Yiwu, China on April 17, 2019 that my friend, Ino from Insight Quality, attended and he was able to get the slides. We were told we can use the slides as long as we credit where we got them from.

This was organized by:

China Tax Bureau, Foreign Affairs and Jiminshan, a government organization that helps foreigners to fit in Chinese society easily.

Here is the transcript of the notes. Also you can download the slides and infographic here

Individual Income Tax

Article 1. Individuals who have a fixed residence in China or stayed in China for more than 183 days within one tax year, are referred as individual residents. Individual residents are obliged to pay individual income tax for personal income obtained within and beyond China.

Individuals who neither have a fixed residence in China nor stayed in China or stayed in the country for less than 183 days in one tax year are referred to as non-individual residents. Non-individual residents who obtained their personal income in China are obliged to pay individual income tax .

Tax Year refers to the period from January 1st to December 31 of the same year.

Tax Coverage

Before the end of 2018 (resident taxpayers)

  1. Wages and Salaries
  2. Income from remuneration for personal service
  3. Income from authors remuneration
  4.  Income from franchise royalties
  5. Production and business income          
  6. Contract rental income
  7. Property leasing income                 
  8.  Property transfer income
  9.  Interest, dividends and extra dividends income    
  10. Accidental income

2019  After beginning of 2019

  1. Comprehensive income             
  2. Business income
  3. Property leasing income           
  4. Property transfer income
  5. Interest, dividends and extra dividends income      
  6. Accidental income

Comprehensive Income Reduction Items

  1. Basic deduction fees – RMB60,000.00
  2. Special expense deduction items
  • Medical insurance, pension, and other social insurances expense
  • Housing provident fund
  1.  Added special expense deduction items
  • Children’s Education
  • Follow up  Education
  • Serious Illness Treatment
  • House Loan Interest
  • House  Rental
  • Support for the elderly
  1. Other deduction items
  • Supplementary Pension
  • Commercial Health Insurance
  • Deferred Pension Insurance
  • Other deductions specified by the state council

The remaining income, after deducting comprehensive income deduction items, is the part that needs to be taxed. The final tax shall be calculated according to the tax rate chart:

Chart of Wages and Salaries Tax Prepayment Rate

Level Accumulated need to be taxed Income (Unit RMB) Tax Rate Fast Calculated Deduction Amount
1 Less than 36,000.00 3% 0
2 More than 36,000.00, But less than 144,000.00 10% 2520
3 More than 144,000.00, But less than 300,000.00 20% 16920
4 More than 300,000.00, But less than 420,000.00 25% 31920
5 More than 420,000.00, But less than 660,000.00 30% 52920
6 More than 660,000.00, But less than 960,000.00 35% 85920
7 More than 960,000.00 45% 181920

How to calculate wages and salaries income prepayment tax

Calculation Formula

Prepayment Tax Amount =

(Accumulated taxable income* × tax rate – fast calculated deduction amount) – accumulated tax reduction – accumulated prepaid tax

*Accumulated taxable income = Accumulated income – Accumulated deductible

income – accumulated basic deduction – accumulated special expense deduction

Among which, accumulated basic deduction is calculated by 5000/month or 5000 multiplied by the number of months one person is employed by the current employer in one tax year.

Tax Payment

After withholding or remitting tax, the withholding agent shall submit individual tax declaration form to tax authorities within 15 days of the next month.

Personal service remuneration income, authors remuneration income & franchise royalties income withholding tax for advanced payment and prepayment declaration

Other comprehensive income withholding tax for advanced payment and prepayment declaration

Withholding agents who pay for individual residents’ personal service remuneration, authors’ remuneration and franchise royalty are obligated to pay for individual income tax every month or on a regular basis.

Calculation of withholding tax for advanced payment  and prepayment

Personal service remuneration, authors’ remuneration, franchise royalty income minus relevant fees, is defined as the final income.

For income less than 4,000 yuan, the amount is fixed at 800 yuan, for those higher than 4,000 yuan, tax amount is 20% of the income.

For personal service remuneration, authors’ remuneration and franchise royalty incomes, the actual income of each time is seen as the income for withholding tax for advanced payment and prepayment,  and the tax amount is based on the actual income.

20% to 40% accumulative tax prepayment is applicable to personal service remuneration income, while 20% tax prepayment is applicable to authors’ remuneration and franchise royalty income.

Calculation Formula

Personal service remuneration withholding tax for advanced payment and prepayment amount = The amount of taxable income × withholding tax for advanced payment rate – fast calculated deduction amount

Level

The amount of taxable income (Unit:RMB)

Advanced payment rate

Fast calculated deduction amount

1

Less than 20,000.00

20%

0

2

More than 20,000.00, while less than 50,000.00

30%

2000

3

More than 50,000.00

40%

7000

Authors’ remuneration and franchise royalty income withholding tax for advanced payment and prepayment amount = the amount of relevant taxable income ×20%

Non residents Individual Income Tax Withhold and Remittance Declaration

Tax withholding and remittance continue to apply for non-resident individuals. Withholding agents are obligated to withhold and remit tax for non-resident individuals who received payment for the withholding agent.

Wages and Salaries

Wages and Salaries of non-resident individual minus 5000 yuan is regarded as the final taxable income; the comprehensive income tax rate chart is applicable.

Non-resident individuals shall inform their withholding agent in time if they become resident individuals. While tax withholding policies remain the same in one tax year, the abovementioned individual shall pay tax as resident individual from the beginning of the next tax year.

Non-resident individual who applies for preferential policies stipulated in certain tax conventions, shall inform the withholding agent and submit relevant information and materials. Withholding agent shall implement related policies stipulated in the tax convention – to withhold and remit tax.

Non resident individual personal service remuneration, authors’ remuneration and franchise royalty income

For Personal service remuneration, authors’ remuneration and franchise royalty income, “the income” is seen as the taxable amount. Non-resident monthly tax rate chart is applicable in calculating final tax.

Personal service remuneration, authors’ remuneration and franchise royalty income minus 20% of the income is seen as “the income”

Non-resident individual wages and salary, personal service remuneration, authors income, franchise royalty income tax rate chart

Level

Taxable Income

(Unit: RMB)

Tax rate

Fast calculated amount

1

More than 3,000.00

3%

0

2

More than 3,000.00, but less than 12,000.00

10%

210

3

More than 12,000.00, but less than 25,000.00

20%

1410

4

More than 25,000.00, but less than 35,000.00

25%

2660

5

More than 35,000.00, but less than 55,000.00

30%

4410

6

More than 55,000.00, but less than 80,000.00

35%

7160

7

More than 80,000.00

45%

15160

Classified Income Tax Withhold and Remittance Declaration

Withholding agent, when paying for property leasing; property transfer; interest; dividends and extra dividends or accidental income; shall withhold tax, monthly or on a regular basis, and declare tax monthly.

Tax calculation

Property leasing income:  Taxable income for those property leasing income of less than 4000 yuan is the property income minus 800 yuan, and that in the case involving property income higher than 4000, the taxable income is the actual income minus 20%.

Property transfer income: Income to be taxed is the actual property transfer income minus the original value of the property and other reasonable fees.

Taxable income for Interest, dividends, extra dividends and accidental income is the original income.

20% tax rate is applicable to property leasing, property transfer, interest, dividends and extra dividends income.

Business income tax declaration

Article 6. Calculation of taxable income: Business income to be taxed refers to the total income of one tax year minus costs, fees and losses of the same year.

Article 12. Tax payers’ business income tax is calculated annually. Tax payer shall submit tax declaration form to tax authority monthly or 15 days after the end of each quarter of the year, and pay tax in advance in the meantime, and make the final settlement before March 31st of next year.

Settlement of the annual income tax(exclusively for resident taxpayers’ comprehensive income)

Article 11. Individual comprehensive income tax is calculated annually. Those individuals with their own withholding agent: their withholding agent shall withhold and remit tax monthly or on a regular basis.

Individuals in need to make tax settlement should finish the settlement during March 1st to June 30th of the next year. Policies of withholding tax and prepayment are issued by State council tax authorities.

In case of resident individuals who provide added special deduction information, the withholding agent is obligated to deduct relevant value in according to the related regulations.

Non-resident individuals who obtain salaries and wages, personal service remuneration, authors’ remuneration and franchise royalty income and have their own withholding agent:  their withholding agent shall withhold and remit tax monthly or on a regular basis. Tax settlement is not needed.

Settlement of the Annual Income Tax (exclusively for resident taxpayers’ comprehensive income)

New Policies

Cases in need of tax settlement for individual comprehensive income

  • If comprehensive income obtained through more than two different entities, and annual comprehensive income minus special deduction items is higher than 60,000.00 yuan.
  • If comprehensive income that comes from personal service remuneration, authors remuneration, franchise royalty, and the annual income after special deduction items remains higher than 60,000.00
  • If Withholding tax is less than the actual tax.
  • If there is an application of tax reclamation
  • If taxpayers are required to provide a bank account opened in China, and  apply for tax reclamation at the same place where tax settlement is made. Policies and measures on tax settlement is issued by the China State Council tax authorities.

We hope that you find the updates on Individual Income Tax in China helpful.  If you want to download the slides in pdf form or the infographic, please click here.

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