The State Administration of Taxation (SAT) issued a provisional regulation [Guoshuifa (2006) No. 162, or Circular 162] on November 6, 2006, to guide residents and non-residents on income tax filing requirements.

Key features

Individuals who fall under the purview of Chinese Individual Income Tax (IIT) and meet one of the following conditions are required to file a tax return every year:

I. Those with an annual income above 120,000 yuan (about US$15,000);

II. Those whose income is sourced from outside the mainland.

The categories of income to be taken into account while determining the annual income threshold of 120,000 yuan include income from wages and salary, self-employment, remuneration for personal services, royalties, dividends and interest, rent, gains from the transfer of property and other taxable income as determined by the State Council.

Items exempted from tax under Article 4 of Individual Income Tax Law may be excluded in determining the annual income threshold of 120,000 yuan.

The deadline for filing the annual individual income tax return under categories I and II is March 31 and January 30, respectively, of the following year. Though the failure to do so in time could lead to a fine, individuals can request the local tax bureau for an extension. Approval, however, is not guaranteed.

Annual tax returns can be filed through the Internet, courier, personal submission or any other method determined by the local tax bureau. Individual taxpayers can hire a professional to prepare and file the tax return on their behalf. If a return is filed through courier, the date stamped by the post office on the envelope will be considered the filing date.

If a taxpayer fails to file the return within the stipulated period, the authorities, under Article 62 of the Administrative Law of the People's Republic of China on the Levying and Collection of Taxes, may impose a fine of up to 10,000 yuan (about US$1,250).

Observations

All taxable income on the mainland must be part of the annual tax return, and that includes income withheld at source, such as those from rent, interest and dividend.

Subject to some exceptions (e.g., nationals with overseas permanent residence status), all PRC nationals are subject to these regulations.

Application norms for non-PRC nationals holding "China green card", or taxpayers who may be living outside the mainland, is still obscure and need further clarification.

PRC national employees working outside the mainland should pay income tax on their worldwide income in China, even if they are on long-term assignments and are no longer living on the mainland. Those with overseas permanent residence status, however, can get an exemption. Foreign tax credits may be available to qualified taxpayers, subject to further review by the local tax bureau.

Non-PRC nationals, regarded as non-residents, and without a domicile and less than a year of residence on the mainland may not be required to file an annual tax return.

Non-PRC nationals without a PRC domicile and living on the mainland for more than one year but less than five years are required only to report their taxable income.

Non-PRC national taxpayers without a PRC domicile and living on the mainland for more than five years without qualifying for recalculation of their period of stay may have to pay tax.

The last date for filing the tax returns for 2006 is March 31, 2007. And any and every extension has to be approved by the local tax bureau.