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Individual Income Tax Refund in China

In China, the introduction of a working mechanism for Individual Income Tax refunds in China provides a relief for employees who are being taxed upfront on the benefits they have not received. If the employer does not meet the contractual obligations it has to an employee, a refund can be claimed for the IIT overpaid proportional to the contribution s/he has forfeited. An IIT refund claim that is made by an employee must be accompanied by IIT withholding reports and receipts as well as annuity contribution details provided by the employer.

Below is a brief overview of Individual Income Tax in China:

General IIT Principles

For individuals to pay tax in China (PRC Tax Resident), they need to be domiciled in China (i.e. a Chinese national).  Non-PRC tax payers tend to be expatriates working in China, whose IIT is determined by applicability of the tax treaty and length of their stay in the PRC (People’s Republic of China) within a calendar year (or the tax year).In addition, IIT of those individuals are affected if the payroll of the expatriate is borne or deemed as borne by a PRC entity and affected by the position and nature of duties performed by the expatriate.

Income Subject to IIT

IIT depends on the number of days spent in the country and whether the income is paid by a PRC employer or is PRC sourced income and borne or deemed as borne by an establishment in the PRC. IIT for Non-PRC tax payers pay varying IIT rates, depending on their length of residence in China and source of income. For 90 days (or 183days, where a treaty applies) or less spent in the PRC, only PRC-sourced income, paid by a PRC employer which is borne or deemed as borne by a PRC entity, is subject to IIT. Between 90 days (or 183 days where treaty applies) to a year, only PRC-sourced income, irrespective of whom the payment is made by, is subject to IIT. From 1 to 5 years, the worldwide income, except when the income relates to non-PRC services and is paid or borne by a non-PRC entity is subject to IIT. If the stay exceeds 5 years, then the worldwide income is subject to IIT.

PRC-Sourced Income

This is income derived from PRC sources irrespective of where the payment is made from (in or out of China), including income from services rendered within China, employment (for example; wages, bonuses, allowances, subsidies, stock options and income related to the individual’s position), or the performance of a contract, etc. Also, income from leasing of property for use in China, or assignment of properties, for example, buildings, land use rights and more, located within China are taxable. In addition, income from granting licensing rights for use within China and income from interest paid by companies, other economic organizations or individuals in China are taxable.

Tax Calculation Method

The IIT payable rate can be calculated by the below formula:

IIT Payable = Taxable Income x Applicable Tax rate – Quick Calculation Deduction (QCD)

LehmanBrown’s Tax team can support you with making an application for an individual income tax refund in China and the following related tax services:

  • Tax Planning for Expats
  • Non-Tax Benefits
  • Special tax calculation method for bonus
  • Offshore service and employment agreement
  • Chinese locals commercial insurance
  • Dual-employment agreement
  • Individual Income Tax
  • Program Registration
  • Reporting and Payment

To make an enquiry, please contact us at enquiries@lehmanbrown.com.