China Personal Tax Settlement 2023
Individual taxpayers who were tax residents in China in 2022 may be required to handle the Individual income tax (“IIT”) annual settlement for the year 2022 from 1 March 2023 to 30 June 2023.
With the “Announcement on Handling the Settlement and Payment of Comprehensive Income from Individual Income Tax in 2022” (Announcement of the State Administration of Taxation No. 3 of 2023) released on February 2, the State Administration of Taxation provided a guideline for taxpayers who are required to handle the annual settlement.
The taxpayers shall determine their taxable income and the amount of IIT payable for the year 2022 according to the following steps:
To sum four income categories (wages and salaries, income from personal services, author’s remuneration, and royalties) obtained from 1 January 2022 to 31 December 2022 into the comprehensive income. Other kinds of income such as business income, property lease income, income from the transfer of property, occasional income, interest, and dividends are not included in the computation.
To deduct from the amount computed at point 1 the standard deduction (RMB 60,000), the special deductions (social insurance contributions, housing rent, housing loan interest), the special additional deductions, and other available deductions determined in accordance with laws and regulations (such as qualified donations).
To determine the amount of annual IIT payable by applying the tax rate and the quick deductions according to the table below.
The amount of the tax paid in advance in 2022 shall be deducted, and the amount of tax should be refunded or paid. The specific calculation formula is as follows:
Refundable or tax payable = [(comprehensive income - 60000 yuan - special deductions such as "three insurances and one fund" - special additional deductions such as children's education - other deductions determined according to law - eligible public welfare charity donations) × applicable tax rate - quick deductions] - prepaid tax amount.
This means that in case the taxpayer underpaid the IIT during the year (which means that the annual IIT payable calculated at point 3 is higher than the tax prepaid during the year), he/she will be required to perform a make-up payment of the tax; in case of overpayment, the taxpayer will be entitled to apply for a tax refund.
Taxpayers who obtain comprehensive income and business income at the same time can declare the deduction of 60,000 yuan of expenses, special deductions, special additional deductions and other deductions determined according to law in the comprehensive income or business income, but shall not declare and deduct it repeatedly.
If a taxpayer prepaid the IIT during the tax year and meets any of the following circumstances, he/she is not required to apply for the annual settlement:
The comprehensive income does not exceed RMB 120,000 in the tax year.
The make-up payment does not exceed RMB 400.
The tax prepaid during the year is consistent with the final annual tax payable amount; and
Those who do not apply for a tax refund even if meeting the conditions.
On the contrary, taxpayers meeting one of the following two circumstances are required to handle the annual IIT settlement:
The IIT prepaid during the year is higher than the annual IIT payable, and the taxpayer intends to obtain a tax refund; and
The taxpayer’s comprehensive income is over RMB 120,000 in the tax year, and the make-up payment exceeds RMB 400.
2022 annual settlement of individual income tax shall be performed between 1 March 2023 to 30 June 2023. Taxpayers who were China tax residents in 2022 who will depart from China before 1 March shall handle the annual settlement before leaving the country.
The annual settlement can be handled directly by the taxpayer. Alternatively, the taxpayer can entrust the employer that acted as withholding agent (in such case, the taxpayer shall confirm with the entity in writing or electronically before 30 April 2023 and provide supplementary information for which he/she is responsible for the authenticity, accuracy, and completeness), or appoint a tax professional by signing a power of attorney.
The annual settlement can be handled through online channels, including an app for mobile phones or by mail, or physically at the tax office. During the year, before the settlement starts, taxpayers can also log into the personal income tax APP and website and check their comprehensive income and tax situation, the bank card, special additional deductions involving personnel identity information, and other basic information, to better prepare for the settlement. An appointment processing service has also been implemented.
After the annual settlement, the taxpayers shall keep all the materials and supporting documentation for five years.