The beginning of 2025 brings an important deadline for taxpayers in China: the Annual Individual Income Tax Reconciliation (ATR). This mandatory process enables individuals to review the income tax paid and withheld throughout the year, calculate any additional tax liabilities or refundable amounts, and submit the final tax settlement to the authorities.
ATR applies to resident individuals in China who have received comprehensive income, including both Chinese citizens and foreign nationals who meet the tax residency criteria. The reconciliation must be completed between March 1 and June 30, 2025.
Since this is a required step, it is crucial to complete the process accurately. Late filing will incur a daily late payment surcharge of 0.05% of the unpaid tax amount; in severe cases, a fine of no less than 50% and up to five times the amount of tax owed may be imposed, and potentially affect the future employment of returning foreign employees. Understanding the ATR filing requirements is essential.
Tax Period & Individuals Concerned
In China, the tax year follows the calendar year, from January 1 to December 31, but tax filings are generally handled on a monthly basis. Employers are required to submit provisional or final Individual Income Tax (IIT) returns for employment income on a monthly basis. For other types of income, tax returns — whether provisional or final — must be filed according to the nature of the income, either on a monthly, annual, or transaction basis.
However, certain categories of residents must complete an annual reconciliation tax return for their comprehensive income, which must be filed between March 1 and June 30 of the following year. Notably, China does not allow joint tax returns for married couples, meaning each spouse is assessed and taxed separately.
Timely submission of tax returns is crucial, and extensions for filing are only permitted in "special circumstances."
Withholding & Self-Reporting Requirements
As just mentioned, In China, the payer of income is generally required to withhold the Individual Income Tax (IIT) when paying taxable income to the recipient. If the payer fails to withhold the correct amount of IIT, the recipient becomes ultimately responsible for the tax due and must handle the tax filing and settlement with the tax authorities.
A taxpayer must file an annual IIT return if they meet any of the following conditions:
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Residents that have overpaid IIT and wish to claim a refund.
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Residents that have underpaid IIT exceeding RMB 400, and their total comprehensive income exceeds RMB 120,000.
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Residents that have misreported or omitted income, leading to incorrect tax calculation.
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Individuals whose income is not subject to withholding, or those earning income from outside China.
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A non-resident (an individual with no domicile in China who resides in the country for less than 183 days in a tax year) receives income from multiple sources within China.
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Individuals applying for de-registration of their Chinese household due to emigration.
Conversely, filing is not required if:
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The prepaid IIT matches the final tax liability.
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The underpayment is below RMB 400, or the total comprehensive income does not exceed RMB 120,000.
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The taxpayer qualifies for a refund but chooses not to claim it.
Filing Process
The filing process is fairly straightforward, but it requires attention to detail. Here are the key steps:
Gathering Required Documents: Employees are required to provide the original certificate of tax payment from overseas, along with a notarised Chinese translation, including pay slips, statements of taxes paid, and any information related to foreign income. This includes income earned both in China and abroad.
Calculating Global Tax: Employees must calculate the total tax owed, taking into account potential tax deductions such as tax credits for taxes paid in other countries or exemptions for those living abroad.
Submit the Filing via the Online System: The filing can be done through the online portal of the local tax administration office in China, or through the employer's services, which may, in some cases, assist employees in completing this filing.
APP: Ge Ren Suo De Shui (个人所得税)
Website: www.etax.chinatax.gov.cn
Verification by the Tax Authorities: Once the filing is submitted, the Chinese tax authorities will reconcile the taxes. If additional payments are required, the employee must settle the amounts owed. Conversely, if the employee has overpaid taxes, a refund will be issued.
Foreign Income and Tax Credits
Global employees should be aware that China applies worldwide taxation for its tax residents. This means that even if an employee earns income outside of China, that income may be subject to Chinese tax.
However, employees can claim tax credits for taxes paid in their home country, depending on the tax treaties in place between China and that country. It is essential to provide detailed documentation of taxes paid abroad to avoid double taxation.
Exemptions and Tax Deductions
Global employees may also benefit from tax exemptions, such as deductions for business expenses, housing costs, or education and training expenses. These deductions can reduce the amount of tax owed and should be properly documented and submitted along with the ATR filing.
Examples:
Basic deduction: RMB 60,000 per year.
Special deductions: Contributions to qualified social insurance premiums (such as basic pension, basic health insurance, and unemployment insurance) and housing fund.
Special additional deductions: Include care for children under the age of three, children’s education, continuing education, serious illness medical expenses, mortgage interest, housing rent, and support for elderly dependents.
Other deductions: Such as contributions to qualified enterprise annuities, occupational annuities, commercial annuities, personal health insurance, and personal pensions.
Qualifying charitable donations: Made through legally recognized Chinese domestic organizations and not exceeding 30% of annual income.
Recommendations for Taxpayers
To ensure smooth compliance, taxpayers should:
- Verify pre-filled data on the IIT App or tax portal.
- Identify eligible deductions and ensure supporting documents are available.
- Coordinate deductions with family members where applicable.
- File early if expecting a refund or requiring corrections.
Fidinam is here to help
The 2024 Annual Individual Income Tax Reconciliation filing process is crucial for all individuals, including foreign employees in China, to ensure compliance and avoid potential penalties. By staying on top of tax obligations and utilizing available deductions, employees can mitigate tax liabilities.
Fidinam is well-equipped to assist individuals in navigating this process, offering expert guidance on tax planning, ensuring accurate filings, and helping to maximize eligible deductions and tax credits.
Contact Fidinam for comprehensive support with your ATR filing and global tax strategies.
