China’s Annual Final Tax Settlement on Comprehensive Individual Income for AY 2019

By Fuki Fu, Dezan Shira & Associates

On December 31, 2019, the Ministry of Finance and the State Taxation Administration (STA) jointly released the New Individual Income Law of the People’s Republic of China, requiring taxpayers to complete their annual final settlement for the 2019 tax assessment year – during the period of March 1 to June 30, 2020.

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More recently, on March 31, 2020 the STA reiterated and expanded this commitment under the Guidelines for Annual Final Tax Settlement of Comprehensive Individual Income of Year 2019.

The guidelines provide more information on who, what, and how the annual final tax settlement is to be conducted and explains how taxpayers can apply for refund on retrospective tax payment.

Annual final tax settlement can be handled through the various online tax platforms, including the mobile phone individual income tax App or via offline methods, such as by mail or in person at the tax office.

Taxpayers can choose to handle the tax settlement independently, with their respective withholding agent, or by eliciting the help of their entrusted tax-related professional service organization. Please contact fuki.fu@dezshira.com for more information.

Who is required to submit an annual final tax settlement in China?

In accordance with the relevant tax laws, taxpayers, who fall under one of the following categories are required to handle their annual final tax settlements:

1. Where the taxpayer’s 2019 prepaid tax amount exceeds the annual tax payable amount and he/she applies for tax refund; and
2. Where the taxpayer’s consolidated income in 2019 exceeds RMB 120,000 (US$16,915) and the tax amount to be paid retrospectively exceeds RMB 400 (US$56.4).

This includes the scenario where the taxpayer has derived income from two or more sources, and the consolidated income amount falls in a higher tax rate bracket, resulting in the prepaid tax amount being less than the annual tax payable amount.

However, taxpayers who fall under one the following categories are exempt from carrying out the 2019 annual final tax settlement:

• Where the taxpayer’s annual settlement shows that he/she is required to pay tax retrospectively, but his/her annual consolidated income amount does not exceed RMB 120,000 (US$16,915);
• Where their annual settlement shows that his/her tax amount to be paid retrospectively does not exceed RMB 400 (US$56.4);
• Income from author’s remuneration; or
• The taxpayer’s prepaid tax amount matches the annual tax payable amount, or he/she is not applying for annual settlement tax refund.

What should be included in the annual settlement?

According to the provisions of the tax law, taxpayers should aggregate information on their four types of comprehensive income, namely:

• Wages and salaries;
• Income from remuneration for personal services;
• Income from author’s remuneration; and
• Income from royalties derived in the period from 1 January to 31 December 2019.

How to apply for an annual settlement tax refund?

Where a taxpayer applies for annual settlement tax refund, he/she shall provide a qualified bank account to be opened in China.

For taxpayers with a 2019 consolidated income not exceeding RMB 60,000 (US$8457.5), and he/she has paid their individual income tax in advance, the tax authorities will provide convenient tax refund function on the online tax platform (including mobile phone individual income tax app) to make it easier for taxpayers to obtain a tax refund.

In such a scenario, the taxpayer may apply for annual settlement tax refund through a simple declaration form in the period of March 1 to May 31, 2020.

Lastly, annual settlement for retrospective tax payment may be made online either via a card payment at the tax office’s point of service terminal, at a bank counter, or via a non-banking payment organization.

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