China Annual IIT Reconciliation in 2024: Everything You Need to Know

Posted by Written by Qian Zhou Reading Time: 7 minutes

Annual IIT reconciliation for the year 2023 is required to be made during the period from March 1 to June 30, 2024. Starting from March 21, taxpayers can make the final tax settlement directly without requiring a prior appointment.

On February 1, 2024, the State Taxation Administration (STA) issued the Announcement on Matters Relating to the Final Settlement of Individual Income Tax on Consolidated Income for the Year 2023 (the Announcement), clarifying matters related to the annual individual income tax (IIT) reconciliation for the year 2023.

Annual IIT reconciliation, or annual IIT settlement, is a process applied to individual taxpayers on their comprehensive income (an individual’s combined income of wages and salaries, remuneration from labor services, author’s remuneration, and royalties), to make sure their IIT paid in the previous tax year is accurate.

Under China’s tax laws and regulations, resident taxpayers should complete the annual IIT reconciliation process from March 1 to June 30, regardless of whether they are Chinese or foreigners.

During the process, individual taxpayers will need to recheck their IIT paid and deducted in the tax year, calculate the refundable or supplementary tax payable, report to the tax authorities, and make the tax settlement.

In this article, we introduce key issues related to the annual IIT reconciliation in 2024 and the key changes as compared to previous years.

What will be settled in the annual IIT reconciliation in 2024?

After the end of the year 2023, a resident individual is required to consolidate his/her four types of comprehensive income, namely wages and salaries, remuneration for personal services, author’s remuneration, and royalties obtained from January 1 to December 31, 2023, to compute the final tax payable amount. The taxpayer needs to deduct the prepaid tax amount in 2023 to obtain the tax refundable or the tax to be made up amount. Further, the taxpayer is required to declare to tax authorities for a tax refund or tax to be made up.

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

For more about IIT calculation, please refer to our portal guide here.

Who needs to make an annual IIT reconciliation in 2024?

According to the Announcement, a resident taxpayer who falls into either any of the following circumstances is required to carry out annual IIT reconciliation:

  • Where the prepaid tax amount exceeds the tax payable amount in the final settlement and the taxpayer applies for a tax refund; or
  • Where the comprehensive income obtained in 2023 exceeds RMB 120,000 (approx. US$16,700), and the tax amount to be made up in the final settlement exceeds RMB 400 (approx. US$56).

Resident taxpayers refer to taxpayers having a domicile in China (usually domestic employees) and taxpayers having no domicile in China but having stayed or expected to stay in China for at least 183 days in a calendar year (usually foreign employees).

Where a taxpayer failed to declare or under-declare his/her comprehensive income for the year 2023 due to an error in the application of an income item or failure of the withholding agent to perform its withholding obligation, he or she is required to make a final settlement truthfully according to the law.

Meanwhile, the Announcement lists out some circumstances under which the annual IIT reconciliation is not required, including:

  • Where the taxpayer has to make up tax in the final settlement, but his/her comprehensive income does not exceed RMB 120,000 in the year;
  • Where the tax amount to be made up does not exceed RMB 400 in the final settlement;
  • Where the prepaid tax amount is consistent with the tax payable amount in the final settlement; and
  • Where the taxpayer satisfies the criteria for a tax refund in the final settlement but does not apply for a tax refund.
Who Needs to Make Annual IIT Reconciliation in 2024?
Category I Category II
  • Resident taxpayers who have overpaid IIT on comprehensive income in 2023; and
  • The taxpayer wants to apply for a tax refund
  • Resident taxpayers who have underpaid IIT on comprehensive income in 2023;
  • The taxpayer’s annual comprehensive income exceeds RMB 120,000; and
  • The IIT amount to be made up exceeds RMB 400.

 

 

What are the available pre-tax deductions that can be made during the annual IIT reconciliation?

According to the Announcement, a taxpayer may deduct or make supplementary deductions for the following pre-tax deductions occurring in 2023 during the annual IIT reconciliation period:

  • Standard deduction: RMB 600,000.
  • Special deductions: Qualified social insurance premiums (such as basic pension insurance premiums, basic medical insurance, and unemployment insurance) and housing fund.
  • Special additional deductions: Deductions for expenses on nursing of children under three years old, children’s education, continuing education, serious illness, housing mortgage interest, supporting the elderly, and housing rent.
  • Other deductions such as qualified enterprise annuity and occupational annuity, commercial annuity, commercial personal health insurance, and personal pensions.
  • Qualified donations to public welfare and charitable donations.

What are the available methods for making annual IIT reconciliation in 2024?

There are three methods for taxpayers to make annual IIT reconciliation in 2024:

  • Completing the formalities on his/her own;
  • Having his/her employer complete the formalities on his/her behalf; and
  • Entrusting others, including specialized tax service agencies or other individuals and organizations to complete the formalities.

For those who want to deal with the annual IIT reconciliation via the employer, the individual taxpayers usually need to let the employer know their choice and confirm the authenticity, accuracy, and completeness of relevant information that they have provided for the annual IIT reconciliation.

For those who want to deal with the IIT reconciliation through an entrusted party, the entrusting party (individuals) and the entrusted party (professional tax service agencies, other units, or other individuals ) need to sign a power of attorney, which stipulates the specific entrust matter.

For more details about the requirements and procedures of the three methods for annual IIT reconciliation, please read our article here.

What are the channels for making annual IIT reconciliation?

IIT reconciliation via the IIT app or the e-tax system

The IIT app (个人所得税app) is a mobile application of the official tax management and individual tax declaration system launched by the STA in 2019. After real-name registration, individual taxpayers can fill out special additional deduction information, download tax payment records, and make annual tax reconciliations, among others.

The e-tax system, also called “Online Tax Bureau for Natural Persons” (自然人电子税务局), is the web version of the IIT app, which is also developed and managed by the STA and offers similar functions to the IIT app.

During the annual IIT reconciliation period, i.e., March 1 to June 30, the IIT App and the e-tax system will open the IIT reconciliation function and individual taxpayers will be able to declare the IIT return for the previous year.

Register with the IIT app or the e-tax system

To be able to make annual IIT reconciliation through the IIT app or e-tax system, the first and essential step is to register with the IIT app or the e-tax system. While Chinese citizens and those with Chinese permanent residence certificates can complete the registration for the IIT app and the e-tax system through face recognition and verification, foreigners need to obtain a register code from the local tax bureau in charge of the registration.

Normally, foreigners can obtain the register code for the IIT app or the e-tax system by physically visiting the local tax bureau and submitting the required documents for real-name authentication

If the foreigners are currently not in China, they might be allowed to entrust their employer to obtain the register code for the IIT app or the e-tax system.

To be noted, different local tax bureaus may have different rules. Foreigners who want to obtain the register code in this way are well advised to double check with their tax bureau in charge of the local practices.

IIT reconciliation by mail or at a tax service office

Where it is inconvenient to complete the formalities through the aforesaid channels, taxpayers may complete the formalities by mail or at a tax service office.

For those who opt for mail for the formalities, they are required to mail his/her tax returns to the address announced by the provincial-level tax authority.

How to deal with equity incentives in annual IIT reconciliation?

Organizations that grant equity (stock) incentives (including equity incentives granted by a domestic enterprise to its employees with shares in an overseas enterprise as the subject matter) and cash incentives for commercialization of service technological achievements etc. shall complete reporting and filing formalities according to the relevant provisions.

At the same time, if a taxpayer obtains equity incentives from the same employer on multiple occasions within a tax year, the employer shall compute and withhold tax on a consolidated basis.

If a taxpayer obtains equity incentives from different employers within a tax year, he/she may provide the relevant information on equity incentives obtained from his/her previous employer to his/her current employer, which shall compute and withhold tax on a consolidated basis, or complete consolidated filing of tax return with taxation authorities between 1 March and 30 June of the following year.

How to decide the tax authority in charge of the annual IIT reconciliation?

Where the taxpayer has an employer, the tax authority for accepting the annual IIT reconciliation is the competent tax authority for the employer, regardless of the method chosen for the IIT reconciliation. Where the taxpayer has more than one employer, the IIT reconciliation can be made to the tax authority for any of the employers.

Where a taxpayer does not have an employer, the annual IIT reconciliation shall be filed with the competent taxation authorities for the location of his/her household registration, habitual residence, or the main source of his/her income.

The main source of his/her income refers to the location of the withholding agent with the largest amount of remuneration for labor services, author’s remuneration, and royalties cumulatively paid to the taxpayer in 2023.

How to make a tax refund or make up underpaid tax?

A taxpayer applying for a tax refund in the settlement shall provide a qualified bank account opened within the territory of China. The tax authorities shall, upon examination and verification according to the provisions, process the tax refund from the treasury according to the relevant provisions on treasury administration.

A taxpayer completing retrospective tax payment formalities may pay tax through online banking, by card payment at the POS terminal of the tax service hall, at a bank counter, or via a non-bank payment organization. Where a tax return is mailed and retrospective tax payment is made, the taxpayer shall promptly monitor declaration progress and pay tax through the IIT APP and e-tax website or the tax service office of the competent tax authorities.

For more frequently asked questions regarding tax refund and tax owed payment, please read our China Briefing article: China Annual IIT Reconciliation – Your Tax Refund FAQs Answered and  China Annual IIT Reconciliation – Your Tax Owed Payment FAQs Answered

What are the important timelines for making IIT reconciliation?

In 2024, as per the Announcement, the IIT reconciliation will be divided into two phases:

  • Phase I: IIT reconciliation during the period between March 1 to March 20, 2024; and
  • Phase II: IIT reconciliation during the period between March 21 to June 30, 2024.

For taxpayers who need to make the annual IIT reconciliation during phase I, they need to make an appointment through the IIT App on any day during the aforesaid timeframe after February 21 (6:00-22:00). Taxpayers who plan to make the IIT reconciliation after March 21 do not need to make an appointment.

What are the changes to the annual IIT reconciliation in 2024?

Compared to previous years’ IIT reconciliation, some changes can be observed in 2024, such as:

  • In 2024, taxpayers are no longer required to confirm their entrustment relationship with entrusting entities before April 30.
  • In 2024, the starting date when taxpayers can make appointments is adjusted to February 21, instead of February 16 in 2023.
  • In 2024, the Announcement clarifies the method, venue, and time of the consolidated declaration of multiple equity incentives.

If you have more questions on annual IIT reconciliation, need assistance with annual IIT reconciliation, or seek other professional tax services, please contact china@dezshira.com.

 

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