Q: Who needs to make an individual income tax (IIT) settlement?

A: A resident individual in the 2024 tax year must combine their comprehensive income for the whole year, calculate the tax payable on an annual basis, and complete the annual IIT settlement.

Q: What is the difference between a resident and a nonresident?

A: A resident refers to a China-domiciled individual or a non-China-domiciled individual who has stayed in China for 183 days or more in one calendar year. A resident individual will be taxed on income earned both within and outside of China. A nonresident refers to those who have stayed in China for less than 183 days in one calendar year. They will be taxed only on income earned within China.

Q: What is the IIT calculation formula?

A: Tax obligation = The balance of tax payable - tax withheld in 2024

Q: Am I due a tax refund or tax payable?

A: Tax withheld > tax payable = tax refund

Tax withheld < tax payable = tax payable

Q: How is annual tax payable calculated?

A: Step 1: Taxable Income calculation

Amount of taxable income = amount of annual comprehensive income - qualified deductions

Step 2: Tax payable calculation

Tax payable = (taxable income - quick deduction) × scaled rates

Q: What consists of the tax-exempt income?

A: Housing allowance, meal allowance, moving expenses, and laundry expenses, in the form of non-cash or reimbursement on actual expenses;

Reasonable travelling allowance for business trip expenses inside or outside China;

Reasonable allowances for home visits, language training expenses, and children’s education expenses, which are permitted and regarded as appropriate by the tax authority.

Q: How can I conduct the annual IIT settlement?

A: Declare online yourself (https://etax.chinatax.gov.cn/);

Declare on the IIT APP (个人所得税APP);

Ask your employer or agent to do it;

Declare by mail;

Declare at the tax bureau.

(Note: Taxpayers who earn an annual income of 120,000 yuan (US$16,500) or more must file a declaration within 3 months after the tax year ends (by June 30, 2025). Those who fail to file on time may face penalties of up to 10,000 yuan, plus the delayed tax payment and a late fee of 0.05% per day of the late payment.)

(Courtesy of Wendy Hou)