Update IIT China: Annual Individual Income Tax Filing 2023

published on 12 April 2024 | reading time approx. 3 minutes

On 31 January 2024, the State Taxation Administration (STA) issued Publication No. 2/2024 on relevant matters related to the filing of the 2023 annual Individual Income Tax (IIT) return for comprehensive income. The filing period is from 1 March 2024 to 30 June 2024.

The annual IIT return applies only to income from the four comprehensive income categories:

salaries and wages
self-employed income
remuneration for manuscripts
and royalties

The annual IIT return does not include other types of income that are not included in comprehensive income, such as rental income.

The following changes apply to the 2023 annual IIT declaration compared to previous years.

If a taxpayer fails to make up for an underpayment of tax or fails to file the tax return before the deadline, the tax authorities will, upon discovery, request the taxpayer to make corrections within a specified period of time. The taxpayer will receive the notice through the IIT application, the tax authority’s website, or other means. A late payment penalty is calculated from the date the payment is overdue. This late payment will be recorded on the taxpayer's IIT record.
In case the taxpayer incorrectly completes the IIT return, resulting in an overpayment or underpayment of tax, and the taxpayer reports the matter to the tax authority, the authority may waive the penalty.
A section has been added on the calculation of stock incentive plan taxes. If a taxpayer receives equity incentives from the same company more than once during the year, the company should calculate the tax due on a consolidated basis. If the taxpayer receives equity incentives from different companies during the year, the taxpayer should report the previous incentives to the current employer so that taxes are calculated and paid on a cumulative basis. Alternatively, the taxpayer may independently file a return with the tax authorities on a consolidated basis. The rule also applies to equity incentives for employees of domestic companies based on the equity of foreign companies.

In addition, the 2024 publication now emphasizes that if taxpayers claim special deductions jointly with their spouse or siblings, they should coordinate to avoid claiming deductions that exceed the allowable amount or ratio. Again, the tax authority will notify the taxpayer of any non-compliance through the IIT application, the tax authority’s website, or withholding agent. Without an explanation or correction from the taxpayer, the tax authority will disallow further claiming of deductions until an explanation or correction is made.

In which cases should an IIT return be filed?

If any of the following circumstances apply, a resident taxpayer is required to file an annual IIT return:	Circumstances that do not require to file an annual IIT return, if the resident taxpayer has already made IIT prepayments in 2023:
The taxpayer has overpaid IIT on comprehensive income (prepaid amounts) and applies for a tax refund.	The taxpayer has underpaid taxes, but the comprehensive income does not exceed RMB 120,000 in 2023.
The comprehensive income in 2023 is more than RMB 120,000 and the underpayment is more than RMB 400.	The amount of underpayment of tax does not exceed RMB 400.
If the taxpayer has incorrectly declared or failed to declare the comprehensive income in 2023 due to the wrong classification of the type of income or the failure of the withholding agent to fulfill the withholding obligation.	The amount of prepaid tax is equal to the total amount of tax to be paid.
	The conditions for tax refund are met, but the taxpayer does not apply for a refund.

Calculation of the IIT 2023 to be paid or refunded

The formula for calculating taxes has remained unchanged from the previous year.

Comprehensive income (salaries and wages, self-employed income, remuneration for manuscripts and royalties) is used to calculate the IIT payable or refundable. The formula for the calculation is as follows.

The determination of the competent tax authority and the reporting channels remain largely unchanged and can be found in our 2022 annual IIT filing article.

Our recommendation

We recommend that all taxpayers and withholding agents pay close attention to Publication 2. It is advisable to review whether there is additional income or deductible expenses to be reported (e.g., self-employed income, charitable donations or educational expense). In addition, we recommend that spouses or siblings be vigilant in ensuring that shared deductions are correctly allocated between them and are not overused.