The State Administration of Taxation (SAT) of China recently published a “Guide of Incentive Policies to Support Combating COVID-19 and Boosting Economy” (the Guide). The policies in the Guide run from those issued in February up to now, including tax and social insurance contributions. It covers Corporate Income Tax (CIT), Value Added Tax (VAT), Consumption Tax (CT), Individual Income Tax (IIT), Urban Land Use Tax (ULUT), and Social Insurance Fund contributions etc.
The incentive policies are summarized below:
|
Department |
Category of Tax/Fees |
Details |
Effective Period |
|
SAT MoF (Ministry of Finance) |
VAT exemption and VAT rate reduction |
VAT exemption for small-scale VAT taxpayers, applied with items with 3% levy rate, or suspension of VAT prepayment on items with 3% VAT prepayment rate.
VAT reduction from 3% to 1% for small scale VAT taxpayers in provinces other than Hubei Province, for items with 3% levy rate; or for VAT prepayment on items with 3% VAT prepayment rate. |
1 March 2020 – 31 May 2020 |
|
SAT MoF |
VAT exemption (also exemption of surcharges, i.e., City Maintenance Tax, Educational Tax and Local Educational Tax) |
For public transportation services, lifestyle services and courier services for daily necessities.
Lifestyle services include cultural and sports, educational and medical, tourism and recreational, catering and hotels, daily life services and other lifestyle services.
A taxpayer may assess itself for qualifying for the VAT exemption. It does not need to record its application with the tax office, but needs to keep relevant documentation on file for later checks by the tax authority. |
1 January 2020 – To be decided later
|
|
SAT MoF |
Refund of VAT |
For Key Protective Gear Manufacturing Companies, the incremental of the input VAT credit balance comparing to December 2019 shall be refunded.
The taxpayer may be able to apply for a refund after it files its monthly VAT returns.
The list of the Key Protective Gear Manufacturing Companies will be decided by the Reform and Development Department and Industrial and Information Department at provincial level or higher. |
1 January 2020 – To be decided later
|
|
SAT MoF |
VAT refund |
The export VAT refund rate has been adjusted for 1084 items of goods to 13%, and 380 items of goods to 9%.
A list of the goods is here (in Chinese). |
As of 20 March 2020 |
|
SAT MoF |
VAT exemption, surcharge exemption CT Exemption |
The VAT, surcharges, or CT will be exempted for those taxpayers who donate goods manufactured by themselves, commissioned for manufacturing, or purchased for non-profitable social organizations, people’s governments at county level or above, relevant state departments, or hospitals responsible for treating COVID-19 patients.
The relevant voucher should be kept on file for later checks by the tax authority. |
1 January 2020 – To be decided later
|
|
SAT MoF |
CIT deduction |
For Key Protective Gear Manufacturing Companies where relevant equipment has been purchased to expand production capacity can apply for the cost to be deducted before tax at once without depreciation. |
1 January 2020 – To be decided later
|
|
SAT MoF |
CIT, loss carry forward |
For industries severely affected by COVID-19, the loss incurred by a company in 2020 may be carried forward for 8 years, instead of 5 years.
The industries above include transportation, catering, hotels and tourism. |
1 January 2020 – 31 December 2020
|
|
SAT MoF |
CIT, IIT deduction of donation |
For companies or individuals, the donation of cash or in-kind, to non-profitable social organizations, people’s governments at county level or above, relevant state departments, or hospitals responsible for treating COVID-19 patients, the cost will be deducted before tax in full amount.
The relevant voucher should be kept on file for later checks by the tax authority. |
1 January 2020 – To be decided later
|
|
SAT MoF Ministry of Human Resources and Social Security (MoHRSS) |
Reduction of contribution of social funds |
Starting from February 2020, companies in Hubei Province are exempt from paying pensions, unemployment insurance and labor injury insurance for their employees, for no longer than 5 months.
For other provinces, the local government can decide any exemptions for small and medium sized companies from February onward, for no longer than 5 months, and 50% reduction for large companies.
For companies affected by COVID-19, they can apply to defer payments of the social funds, no longer than 6 months. No late payment surcharges will be charged for the defer payment.
**Note: further to this policy, different municipal cities and provinces have issued their own policies.
|
1 February 2020 – 30 June 2020 |
|
SAT MoF |
Reduction of Urban Land Use Tax |
Logistics companies either engaged in warehousing or transportation will have a 50% reduction of ULUT, for land it owns, rented or leases out.
A single lot of land can’t be less than 6,000 square meters, for the warehousing of commodities such as , cotton, oil plants, sugar, vegetables, fruit, meat, seafood etc.
Space in the same lot for offices and living areas are not included. |
1 January 2020 – 31 December 2022 |
Our observations
The incentive policies apply across a wide range of businesses, and different tax categories. Make sure your organisation takes advantage of these incentives as businesses move into recovery. Cash is precious.
Each of the policies applies to particular industries, or types of business revenue. As the tax authority does not pre-approve, or pre-check the qualification for these incentives, it is down to the taxpayer to judge whether it qualifies. While the tax authority may post-check (either through a related tax procedure or through a tax audit years later), wrongful application of the incentives could put the taxpayer at a financial disadvantage should tax authorities decide back taxes or late payments are required. It is important that the taxpayer should consult the tax authority, or a tax professional to avoid future risks, if the organisation’s position is not clear.
For more information, please contact author Elizabeth Shi (elizabeth.shi@rouse.com. +86 10 86324049).
