Are you aware of the latest labour law updates in China? We highlight the essential legal changes you should pay attention to across the key states in China!
Annual Final Tax Settlement on Comprehensive Individual Income
To standardize the final settlement process for individual income tax and protect taxpayers’ legitimate rights and interests, the State Administration of Taxation has issued the “Administrative Measures for the Annual Final Tax Settlement on Comprehensive Individual Income,” effective from 26 February 2025. The key points are summarized as follows:
1.Calculation Formula
Taxpayers are required to complete the annual tax reconciliation between March 1 and June 30 of the year following the tax year in which they earned comprehensive income. Taxpayers without a domicile in China who depart the country before the reconciliation period commences may complete the process prior to their departure.
Tax Refundable or Tax to Be Made Up = [(Annual Comprehensive Income – RMB 60,000- Special Deductions – Special Additional Deductions – Other Deductions Determined Pursuant to the Law – Qualified Public Welfare And Charitable Donations) × Applicable Tax Rate – Quick Deduction] – Prepaid Tax Amount
- Types of tax relief include:
- Special deductions: basic pension insurance, basic medical insurance, unemployment insurance, housing provident fund, etc.
- Special additional deductions: infant care (under age 3), children’s education, continuing education, treatment for major illnesses, housing loan interest or rent, and support for elderly dependents.
- Other deductions: contributions to enterprise annuities, occupational annuities, commercial health insurance, and personal pensions.
- Charitable donations: qualified donations made to approved public welfare and charitable organizations.
2. Situations Where Final Settlement Is Not Required
- Additional tax is required, but the total annual comprehensive income does not exceed the specified threshold.
- Additional tax is required, but the amount falls below the prescribed limit.
- The amount of prepaid tax matches the actual tax payable after final settlement.
- A tax refund is applicable, but the taxpayer does not submit a refund application.
3. Situations Where Final Settlement Is Required
- The prepaid tax exceeds the actual tax payable, and the taxpayer applies for a tax refund.
- The prepaid tax is less than the actual tax payable, and the situation does not meet the exemption conditions outlined in Article 6 of these Measures.
- Comprehensive income was under-reported or not reported during the tax year due to misclassification of income types, failure of the withholding agent to fulfill their withholding obligations, or income received without a withholding agent.
4. Priority Tax Refund Service
Tax authorities offer priority tax refund services to support taxpayers facing significant financial burdens, such as low-income families, persons with disabilities, and the elderly.
5. Tax Refund Review and Processing
If any issues or missing information are identified during the review of a tax refund application, the taxpayer will be promptly notified to provide supplementary materials or make necessary corrections. If the taxpayer fails to cooperate or refuses to complete the required updates, the tax authority will not proceed with processing the tax refund.
6. Tax Collection Management
If a taxpayer fails to complete payment or has underpaid taxes after the settlement period, the tax authority will issue a correction notice in accordance with the law. For individuals who have signed the Confirmation of Electronic Delivery of Tax Documents, the notice will be delivered via official channels such as the Personal Tax App or the tax authority’s website. For those who have not signed the confirmation, the notice will be delivered through other appropriate means. Electronic delivery holds the same legal validity as traditional delivery methods.
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