The requirement to make an annual Individual Tax Settlement for 2021 during March-June 2022

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Individual taxpayers who were tax residents in China in 2021 may be required to handle the Individual income tax (“IIT”) annual settlement for the year 2021 from 1 March 2022 to 30 June 2022. On 8 February, the State Administration of Taxation issued an Announcement on Handling the Final Settlement and Payment of Individual Income Tax on Comprehensive Income in 2021 (SAT Announcement [2022] n. 1), which provides a guideline for taxpayers who are required to handle the annual settlement.

Who is required to make an annual settlement?

Taxpayers falling in 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 make-up payment exceeds RMB 400.

Exemptions 

If a taxpayer prepaid the IIT during the tax year and meets any of the following circumstances, he/she will not be required to make an annual settlement:

• The comprehensive income (see below) 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;

Steps to calculate IIT liability

Taxpayers are required to determine their taxable income and the amount of IIT payable for the 2021 fiscal year following these steps:

1. To calculate eh aggregate of four income categories (wages and salaries, income from personal services, author’s remuneration, and royalties) obtained during the period 1 January 2021 to 31 December 2021. Other kinds of income such as business income, property lease income, income from transfer of property, occasional income, interest, and dividends are not included in the computation.
2. Deduct from the amount computed at Step 1: (a) the standard deduction (RMB 60,000); (b) the special deductions (social insurance contributions); (c) the special additional deductions: and, (d) other available deductions determined in accordance with laws and regulations (such as qualified donations).
3. Determine the amount of annual IIT payable by applying the tax rate and the quick deductions according to the table below.

Reconciliation of IIT liability for 2021

If the taxpayer underpaid the IIT during the year (which means that the annual IIT payable calculated at Step 3 above 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.

Timing for making the annual IIT tax settlement 

The annual settlement must be completed between 1 March 2022 to 30 June 2022. Taxpayers who were China tax residents in 2021 who will depart from China before 1 March must complete the annual settlement before leaving the country.

How is the Annual settlement made?

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 2022 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); it can also be done by mail or physically at the tax office.

Record keeping

After the annual settlement, taxpayers must keep all the materials and supporting documentation for five years.

Find out more

This article was produced by Lorenzo Riccardi, Partner at RsA Asia, China, a CELIA Alliance member firm. For further information or if you have any queries relating to the content of this communication, please contact us. CELIA Alliance CELIA Alliance members are identified here. Members of the CELIA Alliance are each independent law firms and do not practice law jointly with any other member of the CELIA Alliance. "CELIA Alliance" and "CELIA" are not trading names. For more information about the CELIA Alliance click here. Disclaimer Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this newsletter. For further legal information click here. Circular 230 disclosure To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Copying If you would like to copy or otherwise reproduce this article then you may do so provided that: (1) any such copy or reproduction is for your own personal use or if it is made available to any third party it is done so on a free of charge basis; and (2) the article is reproduced in full together with the contact details, disclaimer and any logos as they appear on each article.