Comparison of IIT between Hong Kong, China and Taiwan for 2022/2023 (1)
Individual (personal) income tax is an income tax levied by a country (country or region, the same below) on the personal income of citizens and residents of the country and on the personal income of foreign individuals derived from the country.
Hong Kong implements a classified consolidated income tax system. The personal income involves three taxes including salaries tax, profits tax and property tax. Hong Kong residents can choose to calculate the assessable income and tax payment according to the category of their income or choose "Personal Assessment" which enables an individual to aggregate the income or loss from operations and (or) salaries and (or) property in a single assessment. Salaries tax can choose to apply the standard tax rate of 15% or the five-level of progressive tax rates from 2% to 17%. The profit tax (sole proprietorship) and property tax are both subject to the standard tax rate of 15%.
Taiwan implements a consolidated income tax system, which divides taxable personal income into ten categories, including profit income, operations income, salaries and wages income, interest’s income, leasing and royalty income, income from self-cultivation, fishing, grazing, forestry and mining, income from transfer of assets, prizes or reward for winning games and contests, retirement income and other income. Consolidating all income and then calculating the IIT after deducting the prescribed deductions. The consolidated income tax implements a five-level of progressive tax rates, with a minimum tax rate of 5% for the taxable amount less than NT $ 560,000; a maximum tax rate of 40% for the taxable amount over NT $ 4.72 million.
In Mainland China, the new Individual Income Tax Law (hereinafter referred to as “IIT Law? has been implemented from January 1, 2019, dividing taxable personal income into nine categories and implementing different tax calculation methods. The new IIT Law grouped four categories income including income from salaries and wages, income from provision of independent personal services, income from author’s remuneration and income from royalties into the scope of “Consolidated Income? and seven-level of progressive tax rates from 3% to 45% have been applied for determining the IIT. Income from operations, interest, dividends, property leasing, the transfer of an asset and incidental income will still be taxed separately at the rate prescribed for that category of income.
It is worth to mention that with regard to dividends received by individuals, Mainland China and Taiwan need to determine whether there is a tax liability based on the individual ’s tax resident status and source of origin. Since Hong Kong has no capital gains tax, there is no dividends derived from individuals from any region are subject to income tax.
In view of the unique tax exemption and deduction policies in each place, it is recommended that taxpayers can arrange and plan their income tax methods in response to such policies, so that they can fully enjoy local tax exemptions and various preferential policies.
This article only briefly introduces the individual income tax payable by individuals in Mainland China, Hong Kong and Taiwan for their income under employment, and makes a simple analysis and comparison of the IIT burden between Mainland China, Hong Kong and Taiwan for Kaizen’s clients?reference.
In Hong Kong, the income earned by individuals due to their employment should be declared and payable in salaries tax. In China Mainland, it should be declared and payable in individual income tax as salaries and wages, and in Taiwan, it should be declared and payable in personal income tax.
From the perspective of tax scope, the regulations of tax laws of China, Hong Kong and Taiwan are similar. All salaries, allowances and subsidies, bonuses, share equity incentives, etc. obtained by an individual related to the employment are liable to pay taxes. However, the differences between the three places are still relatively large in terms of principle of tax, tax rates, tax exemptions and deductions, and declaration methods. We have listed as follows:
Table One: Comparison of Salaries and Wages Income Between Hong Kong, China Mainland and Taiwan
|
Items
|
Hong Kong
|
Taiwan
|
China Mainland
|
|
Principle of Tax
|
Territoriality Principle
|
Mainly Territoriality Principle; Minimum tax system has been adopted, individuals whose annual oversea income exceeding NT$ 1 million shall make declaration.
|
Nationality Principle
|
|
Tax Law
|
Tax Regulations
|
Income Tax Law（Chapter Two Consolidated Income Tax Law）
|
Individual Income Tax Law
|
|
Tax Year
|
April 1 of current year to March 31 of following year
|
January 1 to December 31 of current year
|
January 1 to December 31 of current year
|
|
Declaration Method
|
Annual Declaration by Individuals
|
Annual Declaration by Individuals, but while the monthly salary exceeds NT$ 86,001, the employer needs to withhold tax every month.
|
Employers withhold tax every month and taxpayers make the annual declaration.
|
|
Declaration Period
|
Tax returns shall be submitted within one month from the date of issue
|
From May 1 to May 31.
|
Withholding and declaring tax before 15th of every month. Annal IIT Declaration from March 1 to June 30.
|
|
Tax Rate
|
Standard tax rate of 15% or five-level of progressive tax rate from 2% to 17%.
|
Five-level of progressive tax rate from 5% to 40%.
|
Seven-level of progressive tax rate from 3% to 45%.
|
|
Basic Exemptions
|
Single: HK$ 132,000
Married: HK$ 264,000
|
General Exemptions:
- NT$92,000
- Over 70 years old：NT$ 138,000
Standard Deductions:
- Single：NT$124,000
- Married：NT$248,000
Special Deductions for Wages：
- NT$207,000
|
RMB 60,000
Spouses cannot jointly declare tax.
|
|
Special Deductions
|
Mandatory Provident Fund (MPF)
|
Itemized Deductions (taxpayers can select one between itemized deductions and standard deductions):
Donation;
Insurance Premiums;
Medical and Childbirth Expenses;
Losses from Disaster; Interest Paid on Loans for Purchase of an Owner-occupied House,
Housing Rent
|
Social Insurance and Housing Provident Fund (HPF)
|
|
Other Deductions
|
- Elderly Residential Care Expenses
- Single Parent Allowance
- Child Allowance
- Dependant Brother or Dependant Sister Allowance
- Personal Disability Allowance
- Self-Education
- Loan Interest
- Approved Charitable Donations
- Qualifying Premiums Paid under the Voluntary Health Insurance Scheme (VHIS) Policy.
- Domestic Rents Deduction
|
Special Deductions:
- Employment Income
- Pre-school Children
- Physically or Mentally Challenged
- Savings and Investment
- Dependants Long-term Care
- Educational Tuition
- Loss from Property Transactions
|
- Elderly Care
- Children’s Education
- Housing Mortgage Interest
- Housing Rent
- Continuing Education
- Critical Illness Medical
- Caring for Infants and Babies under Three Years Old
- Commercial Health Insurance
- Company (Occupational) Annuity
- Tax Deferred Commercial Pension Insurance
|
|
Tax Reduction
|
100% of tax reduction, and maximum HK$6,000 per case for year of assessment 2022/23
|
Basic Living Expense Difference:
A. Basic Living Expense of 2022= NT196,000 * Number of Declared fa milies;
B.Total Exemption+Standard Deductions/Itemized Deductions+Special Deduction for Savings and Investments+ Special Deduction for - Physically or Mentally Challenged + Educational Tuition Deduction + Special Deduction for Pre-school Children+ Special Deduction for Long-term Care
If A-B>0, the difference C can be deducted from the consolidated income of the taxpayer; if A-B<0, no further deduction can be made.
|
Nil
| |
1.
|
HK Residents
|
|
Hong Kong ’s taxation system is territoriality base. Any income under employment earned in or derived from Hong Kong or pension, regardless of whether it has been paid in other tax jurisdictions, is subject to salaries tax. However, if specified conditions are met, full or partial exemption of income or claim for tax credit under salaries tax can be applied.
|
|
(1)
|
Scope of Taxation
Salaries tax in Hong Kong is similar to the salaries and wages item of individual income tax in Mainland China, or the salary and wages tax items of personal income tax in Taiwan. Its scope of taxation includes:
(a) Salaries, Wages and Director’s Fees
(b) Commissions, Bonuses, Leave Pay, End of Contract Gratuities and Payments In Lieu of Notice accrued on or after 1 April 2012
(c) Allowances, Perquisites and Fringe Benefits
(d) Tips from Any Person
(e) Salaries Tax Paid by Employers on Behalf of Employees
(f) Value of a Place of Residence
(g) Stock Awards and Share Options
(h) Back Pay, Gratuities, Deferred Pay and Pay in Arrears
(i) Termination Payments and Retirement Benefits
(j) Pensions
|
|
(2) |
Tax Year
The tax year of Hong Kong salaries tax is from April 1 of the current year to March 31 of the following year. Individuals should declare all their assessable income to the Inland Revenue Department (IRD) during this period.
|
|
(3) |
Declaration Period and Declaration Method
The Hong Kong IRD has issued the Profits Tax Return, Property Tax Return and Employer’s Return for the year of assessment 2022/23 on April 3, 2023. The Individual Tax Return for the year of assessment 2022/23 has been issued on May 2, 2023.
In accordance with the regulations, after receiving the tax return, the individuals should complete and submit it to IRD within one month or at any other time specified in the tax return. Otherwise, they may be fined for late submission.
The tax payable can generally be paid in two instalments, in January and April of the following year. The first instalment is 75% of the tax payable and the second instalment is the remaining 25%. Tax payment methods include postal payment, payment in person, payment by mobile phone, Internet, or Automatic Teller Machine.
|
|
(4) |
Tax Computation
Individuals can choose the following two methods to calculate the assessable income:
(a）
|
Calculate and pay the tax according to the individual’s various income separately
When choosing this method, the individuals should pay salaries tax on any income from employment and pensions, profits from business, and property tax on property income. They can choose to apply the standard tax rate of 15% or the five-level excess progressive tax rate of 2%-17%. The standard tax rate of 15% applies to both profits tax and property tax.
|
(b）
|
Personal assessment
Proprietors, shareholders or owners who meet the application requirements can choose to assess the tax based on personal assessment. At the time of assessment, the tax payable on salaries tax, profits tax and property tax will be calculated together, and then appropriate deductions will be made from the total amount; if there are any balances, the salaries tax rate will be used. This may reduce the total amount of tax payable.
If your only income is chargeable to salaries tax, you will not benefit from electing for personal assessment.
|
|
|
(5) |
Tax Rate
Individuals are taxed on their net chargeable income and applied the standard tax rate 15% or the five-level progress tax rate from 2%to 17%.
Net chargeable income = Income - Total Deductions - Total Allowances
The tax payable is calculated at the progressive tax rate for the chargeable income; or at the standard tax rate of 15% of the net income (without deducting the tax allowance), whichever is lower.
Individuals can use the progressive tax rate to calculate salaries tax, but the salaries tax payable which is calculated at the progressive tax rate must not exceed the tax payable calculated by using the total income before the deductions multiply by the standard tax rate. If the tax payable calculated at the five-level progressive tax rate does not exceed 15% of the taxable income, the tax is calculated by using progressive tax rate; if the calculated tax payable exceeds 15% of the taxable income, the tax is calculated by 15% of the income.
However, individual whose annual income is close to the level specified by the IRD must pay tax at the standard rate. The specific income standard can refer to the Income Level of Hong Kong that is Subject to Tax at Standard Tax Rates.
Table 1-1：HK Five-level Progressive Tax Rates (applicable for Year of Assessment 2018/19 onwards)
|
Level
|
Assessable Amount (HK$)
|
Tax Rate
|
Tax Payable (HK$)
|
|
1
|
On the first 50,000
|
2%
|
1,000
|
|
2
|
On the next 50,000
|
6%
|
3,000
|
|
100,000
|
|
4,000
|
|
3
|
On the next 50,000
|
10%
|
5,000
|
|
150,000
|
|
9,000
|
|
4
|
On the next 50,000
|
14%
|
7,000
|
|
200,000
|
|
16,000
|
|
5
|
Remainder
|
17%
|
|
|
|
(6) |
Allowances
The Hong Kong Tax Law does not stipulate the threshold for salaries tax but sets the tax allowance conditions and amounts. Every individual who has paid salaries tax or has applied for personal assessment is entitled to a basic tax allowance. At the same time, other tax allowances can also be claimed in accordance with the tax law to reduce the total assessable income.
Table 1-2：Allowances (applicable for Year of Assessment 2018/19 onwards)
|
Allowance Items
|
Amount（HK$）
|
|
Basic Allowance
|
132,000
|
|
Married Person’s allowance
|
264,000
|
|
Children Allowance
|
|
For each of the 1st to 9th Child
|
120,000
|
|
Extra allowance for each child born during the year
|
120,000
|
|
Dependent Parent and Dependent Grandparent Allowance (for each dependant)
|
|
Parent/grandparent aged 55 or above but below 60
|
25,000
|
|
Parent/grandparent aged 60 or above or is eligible to claim an allowance under the Governments Disability Allowance Scheme
|
50,000
|
|
Additional Dependent Parent and Dependent Grandparent Allowance
|
|
Parent/grandparent aged 55 or above but below 60
|
25,000
|
|
Parent/grandparent aged 60 or above or is eligible to claim an allowance under the Governments Disability Allowance Scheme
|
50,000
|
|
Dependent Brother or Sister Allowance (for each dependant)
|
37,500
|
|
Single Parent Allowance
|
132,000
|
|
Disabled Dependant Allowance (For each dependant)
|
75,000
|
|
Personal Disability Allowance
|
75,000
|
Note: From Year of Assessment 2023/24 onwards, children allowance for each of the 1st to 9th child is increased to HK$130,000, and extra allowance for each child born during the year is increased to HK$130,000.
|
|
(7) |
Deductions
In calculating salaries tax or personal assessment, in addition to various types of tax allowances, individuals can also claim other tax deductions. According to the relevant laws after the amendment, from the tax year beginning on April 1, 2019 (from Year of Assessment 2019/20onwards), the individuals purchase approved products under the eligible voluntary medical insurance plan for themselves or for the specified relatives, paying the eligible annuity premiums and making the MPF voluntary contributions can receive tax deductions under salaries tax and personal assessment. The maximum limits of the two tax deductions are HK$ 8,000 and 60,000 respectively.
Table 1-3：Deductions for Calculating Salaries Tax and Personal Assessment (applicable for Year of Assessment 2022/23 onwards)
|
Deduction Items
|
Max Amount（HK$）
|
|
Self-Education Expenses
|
100,000
|
|
Elderly Residential Care Expenses （to be paid to home care center, per person）
|
100,000
|
|
Home Loan Interest
|
100,000
|
|
Mandatory Contributions to Recognized Retirement Schemes
|
18,000
|
|
Qualifying Premiums Paid under Voluntary Health Insurance Scheme (VHIS) Policy
|
8,000
|
|
Qualifying Annuity Premiums and Tax Deductions MPF Voluntary Contributions
|
60,000
|
|
Domestic Rental Expense
|
100,000
|
|
Approved Charitable Donations [ (Income?Allowable Expenses ?Depreciation Allowances) * Percentage]
|
35%
|
|
|
(8) |
Tax Reduction Policies
Normally, the Hong Kong government will introduce tax reduction measures at the beginning of each budget year, including tax relief policies for income tax, salaries tax and personal assessment. According to the 2023/24 Budget released, a 100% tax relief will be implemented for salaries tax, income tax and personal assessment for the year of assessment 2022/23, but each case the tax relief will not exceed HK$6,000.
|
| 2. |
Taiwan Residents |
|
In principle, Taiwan ’s individual income tax adopts the territoriality principle, and tax is levied on the income sourced from Taiwan only. In addition, individuals whose overseas income exceeding NT $1 million need to declare a minimum tax. For any individuals having income from Taiwan, the individual income tax is levied on the income sourced from Taiwan. Residents in Taiwan should declare the income, claim exemptions and deductions of his/her spouse and dependants in the Individual Income Tax Return. Individuals who are not residing in Taiwan but have income sourced from Taiwan, unless otherwise specified, individual income tax is computed on gross income and taxes are collected through tax withheld at source.
Taiwan’s individual income tax is based on households and adopts an individual income tax return system. In the case that the individual taxpayer, his/her spouse, and/or dependants, who shall file a joint consolidated income tax return, have the gross consolidated income amount which includes all kinds of incomes. The gross consolidated income includes:
(a) Income from Profit-seeking
(b) Income from Professional Practice
(c) Employment Income
(d) Interest Income
(e) Income from Lease and Royalties
(f ) Income from Self-undertaking in Farming, Fishing, Animal Husbandry, Forestry and Mining.
(g) Income from Property Transactions
(h) Income from Contests and Games and from Prizes and Awards Won by Chance.
(i ) Other income.
|
|
(1)
|
Tax Year
The tax year for Taiwan ’s individual income tax is from January 1 to December 31 of each year. Taxpayers (individuals) should report all taxable income during this period to National Taxation Bureau.
|
|
(2) |
Declaration Period
The declaration period of annual individual income tax is from May 1 to May 31of the following year (due to the new coronavirus epidemic, the 2019 individual income tax declaration period is particularly extended to June 30, 2020). During this period, the taxpayers (individuals) filing the Individual Income Tax Return provided by the National Taxation Bureau manually or filing the Individual Income Tax Return via Internet (Internet Declaration). Taxpayers (individuals) who apply the service of the pre-calculation of individual income tax returns can also use the pre-calculation notice and other relevant form for tax payment or reply to confirmation.
|
|
(3) |
Declaration Method
There are three methods of individual income tax declaration: filing via internet, filing via barcodes, and filing manually.
In order to simplify the individual income tax declaration process, the National Taxation Bureaus and the Ministry of Finance of each regions provide the service of the pre-calculation of individual income tax returns for simplified cases. After the taxpayers (individuals) confirm the pre-calculation notice and other relevant forms they received, they should complete the payment of tax (tax payment case) or reply to confirmation (tax refund case sand non-refundable cases) within the prescribed period, then the individual income tax declaration is completed.
|
|
(4) |
Tax Computation
Net Consolidated Income Tax (Net Taxable Income) = Gross Consolidated Income - Exemptions - Standard / Itemized Deductions - Special Deductions - Basic Living Expenses
Tax Payable =Net Consolidated Income * Tax Rate% - Progressive Difference
Tax Refundable or Tax Self-payable = Tax payable - Total Prepaid Tax and Tax Credit
|
|
(5) |
Individual Income Tax Rate
Table 2-1 Taiwan Progressive Tax Rates (applicable for 2022 onwards)
|
Level
|
Net Consolidated Income (NT$)
|
Tax Rate
|
Progressive Difference（NT$）
|
|
1
|
0 ?560,000
|
5%
|
0
|
|
2
|
560,001 ?1,260,000
|
12%
|
39,200
|
|
3
|
1,260,001?2,520,000
|
20%
|
140,000
|
|
4
|
2,520,001 ?4,720,000
|
30%
|
392,000
|
|
5
|
4,720,001or above
|
40%
|
864,000
|
|
|
(6) |
Exemptions
Personal exemptions increase by 50% if the taxpayer, his/her spouse and the dependant of immediate families are or over 70 years of age. For the 2022 individual income tax return, the personal exemption is NT$92,000 for each person, including taxpayer, his/her spouse and immediate families, or NT$138,000 for those who are or over 70 years of age.
|
|
(7) |
Standard Deductions and Itemized Deductions
Deductions include general deduction and special deductions. The general deductions are divided into standard deductions and itemized deductions. A taxpayer may select either the standard deduction or itemized deductions which is more beneficial to them.
The standard deduction for 2022 is NT $ 124,000 for single person and NT $ 248,000 for married persons filing jointly.
12 Allowable itemized deductions, including contributions and donations, insurance premiums, medical and childbirth expenses, losses from disaster, interest paid on loans for the purchase of an owner-occupied house, housing rent, donations to political parties under the political contribution law, donations to political organizations under the political contribution law, donations for candidates to be elected and election expenses for candidates according to the Public Officers Election Removal Law, which can be deducted in accordance with the provisions of the Income Tax Law.
|
|
(8) |
Special Deductions
Previously, the special deductions, including the special deduction for employment income, loss from property transactions, savings and investments, physically or mentally challenged, educational tuition, and pre-school children. In order to cooperate with the government’s promotion of the long-term elderly care policy, the 2020 tax return also included the long-term elderly deduction, which is deducted by a fixed amount of NT $ 120,000 per person. However, the special deduction for long-term elderly care is not applicable to taxpayers whose applicable tax rate is greater or equal to 20% for the consolidated individual income after the amount of the long-term care deduction, or to those who opt for the single tax rate of 28% on dividend income computed separately.
For tax year 2022, the employment deduction may be elected to use either fixed salary deduction limited to NT$207,000 for each person or special deductions for necessary salary expenses from employment income to calculate taxable salary income.
Necessary salary expenses including vocational clothing expenses, upgrading training expense, and vocational tool expenses which are directly related to services rendered.
As the upper limit of each necessary salary expense is 3% of the annual salary income, and the upper limit of the special deduction for salary income is NT $ 207,000, it is beneficial for taxpayer to choose the necessary salary expense deduction while the taxpayer ’s annual income exceeds NT $ 2.3 million. It is advised to prepare three envelopes or file bags to separately safe keep the receipts of vocational clothing expenses, upgrading training expense, and vocational tool expenses.
|
|
(9) |
Basic Living Expenses
From tax year 2022 onwards, the basic living expense is NT$196,000 per person and the calculation method for comparation of basic living expenses has also been changed. If the amount of basic living expense is higher than the sum of personal exemption, general deductions, special deductions, the difference can be used as an additional deduction from the gross consolidated income.
The Basic Living Expense Difference calculation formula is:
Total Basic Living Expenses - (Exemptions + Standard / Itemized Deductions + Pre-school Deduction + Disability Deduction + Deduction for Savings and Investment + Deduction for Educational Tuition+ Long-term Elderly Deduction)
|
|
(10) |
Summary of Exemptions and Deductions
According to the current standard of tax exemptions and deductions, for the 2022 consolidated income tax return, taxpayers are exempt from individual income tax when they are singles with annual income of less than NT $ 423,000, or childless couples with annual income of less than NT $ 846,000, or couples have two children under the age of five and have income less than NT $ 1,270,000, or couples have two children under the university and have annual income of NT $ 1,080,000.
Please refer to the list of Taiwan individual income tax exemptions and deductions.
Table 2-2: Taiwan Summary of Exemptions and Deductions (applicable for 2022 onwards)
|
Categories
|
Applicable Scope
|
Deduction Amount （NT$）
|
|
Exemptions
|
|
Exemptions
|
General
|
92,000
|
|
Taxpayer, his/her spouse and immediate families are over 70 years of age
|
138,000
|
|
General Deductions
|
|
Standard Deductions
|
Single
|
124,000
|
|
Married (jointly declaration)
|
248,000
|
|
Itemized Deductions
|
Donations to educational, cultural, public welfare or charitable organizations or associations.
|
Upper limit is 20% of the consolidated income.
|
|
Donations to government or national defence, labour force, historical monument maintenance
|
Verified amount (no upper limit)
|
|
Donations to political organization under the political contribution law
|
Less than 20% of total consolidated income and less than 200,000 for each taxpayer
|
|
Life Insurance
|
Upper limit 24,000／person
|
|
National Health Insurance
|
Verified amount
|
|
Medical Expenses
|
Verified amount
|
|
Losses from Disaster
|
Verified amount
|
|
Interest Paid on Loans for the Purchase of an Owner-occupied house/Rental Payment
|
Either interest paid on loans for the purchase of an owner-occupied house maximum of NT$300,000 or rental payment maximum of NT$120,000 for the lease.
|
|
Special Deduction
|
|
Special Deductions
|
Salary Special Deductions/Necessary Salary Expense
|
207,000／person
|
Upper limit for each item is 3% of salary income.
|
|
Loss from Property Transactions Deduction
|
The upper limit is the income from property transactions of the year. the amount over than the upper limit can be deducted within three years.
|
|
Physically or Mentally Challenged Person Deduction
|
207,000／person
|
|
Savings and Investment Deduction
|
Upper limit 270,000／household
|
|
Educational Tuition Deduction
|
25,000／person
|
|
Pre-school Children Deduction
|
120,000／person
|
|
Long-term Elderly Care Deduction
|
120,000／person
| |
3.
|
China Mainland Residents |
|
According to the Tax Law of Mainland China (hereinafter referred to as China), the employment income earned by individuals in China called salaries and wages income, including salaries and wages, bonuses, year-end salary increases, labour dividends, equity incentives, allowances, subsidies and other income related to employment are one part of the consolidated income. Regardless of whether the payment is made in China or not, it is the income derived from China, and individual income tax should be declared and paid according to the law.
According to the regulations, when taxpayers obtain salaries and wages income, they shall apply the seven-level of progressive tax rates to calculate individual income tax on an annual basis and the withhold and prepay on a monthly basis. Then complete the individual income tax annual declaration from March 1 to June 30 of following year according to the actual income obtained.
|
|
(1)
|
Tax Year
Starting from January 1, 2019, China ’s individual income tax has been calculated on an annual basis, like Hong Kong and Taiwan. The tax year is from January 1 to December 31 of each calendar year and taxpayers shall declare all of their incomes of this period to tax bureau.
|
|
(2) |
Declaration Method and Declaration Period
However, the difference with Hong Kong and Taiwan is that the individual income tax on salaries and wages income in China is subject to monthly withholding and prepayment and annual declaration.
The withholding agent is the employer who pre-calculates and withholds the individual income tax payable when pays the monthly salary to employees, then the withholding agents pays the individual income tax to the tax bureau within the specified reporting period of the following month.
The period for monthly withholding and declaration is from the 1st to the 15th of each month (in case of regular holidays, it will be postponed). During this period, the withholding agent shall complete individual income tax declaration and payment on the salaries and wages obtained by employees in the last month. Taxpayers without withholding agents can go to the tax bureau in person to file their own declarations.
According to the regulations of the IIT Law, resident individuals need to calculate the tax amount of consolidated income including salaries and wages, labour remuneration, author’s remuneration, and royalties obtained from January 1 to December 31 of the previous year after the end of the year, minus the amount of tax paid in advance for the current year. Then calculate the amount of tax refundable or additional payable for the current year on annual declaration to tax bureau.
The annual declaration period of individual income tax is from March 1 to June 30 of the following year when the income is obtained. Eligible taxpayers can handle the annual declaration by themselves, or they can entrust withholding agents or other units and individuals to handle for them.
|
|
(3) |
Cumulative withholding method
When the withholding agent pays consolidated income such as salaries and wages to the resident individual, the withholding tax is calculated according to the cumulative withholding method, and individual income tax is withheld on a monthly basis. When the taxable income is still negative after the end of the tax year, the taxpayer shall apply the tax refund by annual declaration. Calculated as follows:
Withholding Tax in Current Period
= (Cumulative Withholding Taxable Income * Withholding Tax Rate - Quick Deduction)-Cumulative Tax Exemptions and Deductions - Cumulative Tax Withheld
Cumulative Taxable Income for Withholding and Prepayment
= Cumulative Income - Cumulative Tax Exempted Income - Cumulative Deductions - Cumulative Special Deductions - Cumulated Special Additional Deductions ?Other Cumulated deductions Stipulated by Law
|
|
(4) |
Annual One-off Bonus
Resident individuals who receive an annual one-off bonus can choose the following two methods to calculate the tax payable amount before December 31, 2023.
| （a） |
The annual one-off bonus is not integrated into the consolidated income of the year. The annual one-off bonus income is divided by the amount obtained in 12 months and determine the applicable tax rates and quick deductions according to the monthly consolidated income tax rate table (Table 3-3) to calculate the tax.
The calculation formula is:
Tax Payable = Annual One-off Bonus Income * Applicable Tax Rate - Quick Deductions
|
（b）
|
Resident individuals who obtain an annual one-off bonus also can choose integrated into the consolidated income of the year to calculate tax, and the cumulative withholding method is applicable. |
Pursuant to the current policies, starting from January 1, 2024, individual residents who receive an annual one-off bonus for the whole year must be integrated into the consolidated income of the year to calculate and pay individual income tax.
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|
(5) |
Share Option Incentive
Resident individuals who obtain share option incentives such as stock options, stock appreciation rights, restricted stocks, and equity awards are not included in the consolidated income of the year before December 31, 2023 to calculate the tax according to consolidated income tax rate. If a resident individual obtains two or more equity incentives within a tax year, they shall be integrated for calculation.
The calculation formula is
Tax Payable = Share Option Incentive income * Applicable Tax Rate - Quick Deduction
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(6) |
Exemptions and Deductions
For China individual residents, when calculating individual income tax on salaries and wages, RMB 60,000 special deductions, special additional deductions and other deductions determined according to law can be deducted for each year.
Foreign individuals who meet the conditions of the resident can choose to enjoy the deduction according to the above standards, or enjoy allowances such as housing subsidies, language training fees, child education fees, etc. These two preferential policies cannot be enjoyed at the same time. From January 1, 2024, foreign individuals will only be able to apply the same deduction criteria as Chinese individual residents.
Table 3-1 IIT Exemptions and Deductions (applicable from the year 2019 onwards)
|
Categories
|
Items
|
Deduction Amount（RMB）
|
|
Every Month
|
Every Year
|
|
|
Exemptions
|
Basic Exemption Amount
|
5,000
|
60,000
|
|
|
Special Deductions
|
Basic Pension Insurance
|
Deduction within the limit
|
Deduction within the limit
|
|
|
Basic Medical Insurance
|
|
|
Unemployment Insurance
|
|
|
Housing Provident Fund
|
|
|
Additional Special Deductions
|
Children’s Education
|
1,000 per child
|
12,000 per child
|
|
|
Continuing Education
|
|
Formal Schooling
|
400
|
4,800
|
|
|
Professional technicians?occupational qualifications
|
-
|
3,600
|
|
|
Critical Illness Medical Expenses
|
-
|
The part of RMB 15,000 exceed the medical insurance and borne by the patient, deducted as incurred with the limits
RMB 80,000.
|
|
|
Housing Mortgage Interest
|
1,000
|
12,000
|
|
|
Housing Rent
|
800
Or 1,100
Or 1,500
|
9,600
Or 13,200
Or 18,000
|
|
|
Elderly Care
|
No more than RMB 1,000 or RMB 2,000
|
No more than RMB12,000 or
RMB 24,000
|
|
|
Caring for Infants and Babies under Three Years Old
|
1,000 per child
|
12,000 per child
|
|
|
Other Deductions
|
Company Annuity
|
Per regulations by State
|
Per regulations by State
|
|
|
Occupational Annuity
|
Statutory
|
Statutory
|
|
|
Commercial Health Insurance
|
-
|
2,400
|
|
|
Tax Deferred Commercial Pension Insurance
|
Per regulations by State
|
Per regulations by State
|
|
|
|
(7) |
Tax Rate
According to the regulations, the taxpayer’s income from salaries and wages is subject to a seven-level of progressive tax rates in the range of 3% to 45%, and the individual income tax is calculated on an annual basis, and a monthly withholding and prepayment method is implemented
Table 3-2: Salaries and Wages IIT Rate (applicable for year 2019 onwards)
|
Level
|
Taxable Income（RMB）
|
Tax Rate (%)
|
Quick Deduction（RMB）
|
|
1
|
Less than 36,000
|
3
|
0
|
|
2
|
More than 36,000 and less than 144,000
|
10
|
2,520
|
|
3
|
More than144,000 and less than 300,000
|
20
|
16,920
|
|
4
|
More than 300,000 and less than 420,000
|
25
|
31,920
|
|
5
|
More than 420,000 and less than 660,000
|
30
|
52,920
|
|
6
|
More than 660,000 and less than 960,000
|
35
|
85,920
|
|
7
|
Over 960,000
|
45
|
181,920
|
Table 3-3: Monthly Consolidated IIT Rate (applicable for year 2019 onwards)
|
Level
|
Taxable Income（RMB）
|
Tax Rate (%)
|
Quick Deduction（RMB）
|
|
1
|
Less than 3,000
|
3
|
0
|
|
2
|
More than 3,000 and less than 12,000
|
10
|
210
|
|
3
|
More than 12,000 and less than 25,000
|
20
|
1,410
|
|
4
|
More than 25,000 and less than 35,000
|
25
|
2,660
|
|
5
|
More than 35,000 and less than 55,000
|
30
|
4,410
|
|
6
|
More than 55,000 and less than 80,000
|
35
|
7,160
|
|
7
|
Over 80,000
|
45
|
15,160
| |
Next article：Comparison of IIT between Hong Kong, China and Taiwan for 2022/2023 (2)
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