Announcement of State Taxation Administration on Matters relating to the Final Settlement of IIT on Consolidated Income in 2020
Announcement [2021] No.2 of the State Taxation Administration
For the purposes of pragmatically protecting the legitimate rights and interests of taxpayers, establishing and improving upon the system for final settlement of IIT on consolidated income in a reasonable and orderly manner, pursuant to the relevant provisions of the IIT Law and its Implementation Regulations (hereinafter referred to as the "IIT Law") and the Administrative Law on the Levying of Taxes and its Implementation Regulations, announcement is hereby made on matters relating to final settlement of IIT on consolidated income in 2020 (hereinafter referred to as the "annual settlement") as follows:
I. Contents of annual settlement
Pursuant to the provisions of the IIT Law, upon end of 2020, any resident individual (hereinafter referred to as the "taxpayer") is required to aggregate his/her income derived from wages and salaries, remuneration for personal services, author's remuneration and royalties (hereinafter referred to as the "consolidated income") during the period from January 1, 2020 to December 31, 2020 after deducting the expense of CNY60,000 as well as special deductions, special additional deductions, other deductions determined according to law and qualified donations for public welfare and charity (hereinafter referred to as the "donations"), and compute the final tax payable amount for the current year by applying the IIT rate on consolidated income and minus the quick computation deductions (see Appendix 1 for IIT Rate Schedule), then get the tax amount to be refunded or made up after minus the prepaid tax amount in 2020 from the final tax payable amount for the current year. He/she shall file his/her IIT returns and complete formalities of tax refund or tax retrospective payment with tax authorities. The specific formula is as follows:
Tax amount to be refunded or made up = [(consolidated income – CNY 60,000 - special deductions such as "contributions to three types of insurances one fund" - special additional deductions such as children's education expense- other deductions determined pursuant to the law - donations) * applicable tax rate - quick computation deduction] - prepaid tax amount in 2020
Pursuant to the provisions of the IIT Law, annual settlement of income does not involve categorized income such as property lease, and income such as annual one-off bonus which the taxpayer opts pursuant to the provisions to be excluded from consolidated income for computation of tax payment.
II. Taxpayers who are not required to make annual settlement
Upon approval by the State Council, the Announcement of Ministry of Finance and State Taxation Administration on Policy Issues relating to Final Settlement of IIT on Consolidated Income ([2019] No. 94) provides that a taxpayer is not required to make annual settlement if he/she has prepaid IIT pursuant to the law in 2020 and satisfies any of the following criteria:
(I) where it is necessary to make up tax in annual settlement, but the consolidated income does not exceed CNY 120,000 in the year;
(II) where the amount of tax to be made up in annual settlement does not exceed CNY 400; or
(III) where the prepaid tax amount is consistent with the annual tax payable or the taxpayer has not applied for tax refund.
III. Taxpayers who are not required to make annual settlement
Pursuant to the provisions of the IIT Law, a taxpayer is required to make annual settlement if he/she satisfies either of the following criteria:
(I) where the prepaid tax amount is more than the annual tax payable and the taxpayer has applied for tax refund; or
(II) where the consolidated income exceeds CNY120,000 in the year and the amount of tax to be made up exceeds CNY400.
IV. Allowable pre-tax deductions
With regard to the following pre-tax deduction items which occur in 2020, for which the taxpayer has not declared for deduction or has not deducted in full, the taxpayer may deduct them or make up for the deduction during the annual settlement period:
(I) medical expenses for qualified major illness of the taxpayer and his/her spouse and minor children;
(II) special additional deductions for eligible children's education, continuing education, housing loan interest or housing rent, and support for the elderly, as well as the deducted expenses, special deductions and other deductions determined pursuant to the law; and
(III) donation expenditure of the taxpayer which satisfies the criteria.
V. Time limit
The annual settlement period is from 1 March to 30 June 2021. Where a taxpayer who does not have a domicile in China is going to leave China before 1 March 2021, he/she may complete annual settlement prior to departure.
VI. Methods
A taxpayer may opt for any of the following methods to make the annual settlement:
(I) making the annual settlement by himself/herself;
(II) entrusting his/her employer (including the employer which withholds and pays IIT on his/her income from remuneration for labour services under the cumulative withholding method, same hereinafter. Hereinafter referred to as the "employer") to make the annual settlement on behalf of him/her.
If a taxpayer requests his/her employer to make the annual settlement on behalf of him/her, the employer shall complete the declaration of annual settlement and tax refund (retrospective payment) on behalf of the taxpayer or provide training or counselling to the taxpayer through the online tax office (including mobile income tax application, same hereinafter).
For the completion of annual settlement by the employer on his/her behalf, the taxpayer shall, by 30 April 2021, confirm with the employer in writing or electronically, provide supplementary information and materials on him/her consolidated income derived from any party other than the employer in 2020, the relevant deductions, tax incentives etc. to the employer, and shall be responsible for the veracity, accuracy and completeness of the information submitted. The employer is not allowed to make annual settlement on behalf of a taxpayer if the taxpayer fails to confirm with it to do so.
(III) entrusting a specialized tax-related service agency or any other organisation or individual (hereinafter referred to as the "agent") to make the annual settlement on behalf of the taxpayer, under which the agent shall enter into a power of attorney with the taxpayer.
Upon completion of annual settlement on behalf of a taxpayer, the employer or the agent shall promptly notify the taxpayer of the processing status. If the taxpayer discovers that there is an error in the declaration information, it may require the employer or the agent to complete the formalities for correction of declaration, or may complete the formalities for correction of declaration on its own.
VII. Tax service channels
To provide convenience for taxpayers, the tax authorities provide efficient and speedy online tax service channels for taxpayers. Taxpayers may make the annual settlement via the online tax office in priority, and the tax authorities will provide taxpayers with services for pre-completion of declaration forms pursuant to the provisions; where it is inconvenient to make the annual settlement via the aforesaid channels, taxpayers may make the annual settlement by mail or at the tax service office.
For the option to make the annual settlement by mail, taxpayers are required to mail the IIT Returns to the address announced by the tax authorities in provinces, autonomous regions, centrally-administered municipalities or cities with unilateral planning where the competent tax authorities as determined pursuant to Article 9 of this Announcement are located.
VIII. Retention of declaration information and materials
The Annual Self-filling of IIT Returns (see Appendix 2 and Appendix 3) shall apply to taxpayers making the annual settlement for 2020. If there is a need to amend his/her relevant basic information, resulting in a new entitlement to deduction or tax incentives, the taxpayer shall also fill in the relevant information pursuant to the provisions. Taxpayers shall check the information carefully to ensure that the information they fill in is true, accurate and complete.
A taxpayer and the organization making the annual settlement on behalf of the taxpayer shall respectively retain the Annual Settlement Returns and the relevant materials on the taxpayer's consolidated income, deductions, tax paid or tax incentives, etc. for five years with effect from the end of the annual settlement period.
IX. Tax authorities accepting annual settlement returns
Pursuant to the principle of convenience for proximity, where a taxpayer makes the annual settlement on his/her own or an agent makes the annual settlement on his/her behalf, he/it shall do so with the competent tax authorities at the place where the taxpayer's employer is located; in the case of two or more employers, the taxpayer may opt to complete the declaration formalities with one competent tax authority concerned.
Where a taxpayer is not employed by any employer, he/she shall complete the declaration formalities with the competent tax authority at the location of his/her census register, habitual residence or main source of income. A main source of income shall mean the location of the withholding agent with the largest cumulative income derived by a taxpayer in a tax year from remuneration for personal services, author's remuneration and royalties.
Where the employer of a taxpayer makes the annual settlement on behalf of the taxpayer, it shall complete the declaration formalities with its competent tax authority.
X. Tax refund and retrospective tax payment in annual settlement
(I) Formalities of tax refund
Taxpayers applying for tax refund in annual settlement shall provide a qualified bank account opened by them within the territory of China. Upon examination and approval pursuant to the provisions, the tax authorities shall process tax refund at the location of the tax authorities which accept annual settlement and declaration as determined in Article 9 of this Announcement pursuant to the relevant provisions on treasury administration (i.e. the place of final settlement). If a taxpayer does not provide his/her valid bank account, or the information provided is wrong, the tax authorities shall notify the taxpayer to make correction, and the taxpayer shall complete tax refund formalities pursuant to the law after making correction as required.
To facilitate obtaining of tax refund by taxpayers, the tax authorities provide convenient tax refund function in the online tax office for taxpayers whose consolidated income is not more than CNY 60,000 and which have prepaid IIT. Taxpayers may complete formalities of tax refund in annual settlement through a simplified declaration form during the period from 1 March to 31 May 2021.
Where a taxpayer applying for tax refund in annual settlement for 2020 has failed to complete formalities of retrospective tax payment in annual settlement for 2019, which should have been completed, or refuses to make correction or explanation upon being notified by the tax authorities of the fact that there are doubts in the declaration of annual settlement for 2019, it may apply for tax refund pursuant to the law only after completing retrospective tax payment in annual settlement for 2019, correcting the declaration or explaining the relevant information.
(II) Formalities of retrospective tax payment
To complete the formalities of retrospective tax payment in annual settlement, a taxpayer may make payment through online banking, POS machines at the tax service office, bank counter, non-bank payment agencies etc. If a taxpayer makes declaration by mail and pays tax retrospectively, it shall promptly pay attention to the progress of declaration and make tax payment through the online tax office or the tax service office of the competent tax authorities.
Where a taxpayer makes excess tax refund or under-payment of taxes in annual settlement due to an error in completing declaration information, and makes correction promptly on its own initiative or upon being reminded by the tax authorities, the tax authorities may exempt the taxpayer from punishment pursuant to the principle of "no punishment for first violation".
XI. Annual settlement services
Tax authorities launch a series of measures for optimizing services, strengthen the policy interpretation and guidance on the operation of annual settlement, prepare tax service guidelines by category, explain policy caliber, terminology and operational procedures in a popular manner, provide reminding services through multiple channels and in a variety of forms, and provide tax-related consulting services through mobile IIT APP, webpages, the 12366 tax service platform and other channels, so as to help taxpayers solve problems encountered in making annual settlement, and actively respond to their appeals.
To guide taxpayers to complete annual settlement in a reasonable and orderly manner, the competent tax authorities shall notify taxpayers in batches and phases to remind them to complete the formalities within a determined period of time. To complete the formalities in advance or postpone the process, a taxpayer may make an appointment with the tax authorities or complete the formalities within the annual settlement period through the online tax office. Where there is difficulty in completing annual settlement independently for the elderly, people with mobility problem and other special groups, the taxpayer may submit an application and the tax authorities may provide personalized annual settlement services.
XII. Miscellaneous
In case of any inconsistency between Paragraph 2, Article 1 of the Announcement of State Taxation Administration on Issues Concerning the Self-Filing of IIT Returns (Announcement [2018] No.62) and this Announcement, this Announcement shall prevail.
State Taxation Administration
8 February 2021
Appendices (Only Title Translated):
1. IIT Rate Schedule (Applicable to Consolidated Income)
2. Annual Self-Filing of IIT Returns (Form A, Short Form, Q&A Version)
3. Annual Self-Filing of IIT Returns (Form B)
