[Explainer] What You Need to Know About Individual Income Tax

Q How should a non-resident individual be taxed on income from equity incentives received within one month?

A Income from equity incentives received by a non-resident individual within a month shall be calculated separately in accordance with relevant regulations, and shall not be merged with other salaries and wages of the same month, and shall be taxed on an apportioned basis for six months (the income from equity incentives within a calendar year shall be merged), with no deduction and subject to the monthly tax rate table.

Taxable amount is calculated as follows: Taxable amount of the current month's equity incentive income = [(total amount of equity incentive income in the current calendar year ÷ 6) x applicable tax rate - quick deduction] x 6 - Taxed amount of equity incentive income in the current calendar year.

Q Can a foreign employee working in China deduct the cost of insurance paid abroad when calculating individual income tax?

A No, special deductions shall include basic pension insurance, basic medical insurance, unemployment insurance and other social insurance and housing provident fund, etc., paid by individual residents in accordance with the scope and standard prescribed by the state.

Q What conditions should be met for public benefit donations deduction?

A Donations made by individuals to education, poverty alleviation, relief of poverty and other public welfare and charitable causes through public welfare social organizations within China, governments and their departments at or above the county level and other state departments may be deducted in calculating taxable income according to the law.

Domestic public welfare social organizations include charitable organizations, other social organizations and mass organizations that have been established or registered according to the law and have obtained the qualification for pre-tax deduction of public welfare donations according to the certain conditions and procedures.

Q How to calculate and pay individual income tax if an individual earns income from buying and selling virtual currencies through the Internet?

A The income obtained by an individual from purchasing virtual currencies from players through the network and selling them to others after marking up the price belongs to the taxable income of individual income tax, and should be calculated and paid according to the item of income from transfer of assets.

The original value of the assets of an individual selling virtual currencies is the price and the relevant taxes and fees paid for the acquisition of virtual currencies through the network.

If an individual is unable to provide relevant proof of the original value of the assets, the competent tax authority shall approve the original value of the assets.

Q What documents should be provided for resident individuals to apply for credit for individual income tax paid abroad?

A When a resident individual declares foreign income tax credit, unless otherwise specified, he shall provide tax records to which the tax belongs issued by the overseas tax departments, and no credit shall be granted if he fails to provide tax records that meet the requirements.

If a resident individual who has declared foreign income and has not taken a tax credit obtains a tax record and declares tax credit in a subsequent tax year, he may take the credit retroactively to the tax year to which the foreign income belongs, but the retroactive year may not exceed five years.

If there is a change in the actual paid tax amount stated in the tax payment voucher issued by the overseas taxpayer for the tax year in which the overseas income is obtained within five years, the actual paid tax amount shall be recalculated and a supplementary tax refund shall be processed, without imposing any late tax fees or refunding interest.

If taxpayers are unable to provide tax payment vouchers, they can apply for overseas income credit by presenting both the overseas income tax declaration form (or the tax payment notice confirmed by the overseas taxpayer) and the corresponding bank payment voucher.

Q What are the rules on the source of remuneration received by non-residents and individual residents without a domicile in China from serving as executives of resident enterprises in China?

A For individuals who serve as directors, supervisors, and are in senior management positions of domestic resident enterprises, whether or not they perform their duties in China, income derived from fees paid or borne by domestic resident enterprises for directors, supervisors, salaries or other similar remuneration is regarded as income derived from China.

Source: City News Service