China Tax Center China Tax & Investment Express

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1 Issue No January 2019 China Tax Center China Tax & Investment Express (CTIE)* brings you the latest tax and business announcements on a weekly basis. CTIE provides a synopsis of each announcement including a link that leads you to the full content of the announcement (in Chinese). Please feel free to contact your EY client service professionals for further assistance if you find the announcements have an impact on your business operations. CTIE does not replace our China Tax & Investment News* which will continue to be prepared and distributed to provide more indepth analyses of tax and business developments in China. *If you wish to access the previous issues of CTIE and China Tax & Investment News, please contact us. Tax circulars Public notice (PN) regarding a catalog of currently enforceable preferential Individual Income Tax (IIT) policies (MOF/SAT PN [2018] No. 177) On 27 December 2018, the Ministry of Finance (MOF) and State Administration of Taxation (SAT) jointly released Caishui [2018] No. 164 ( Circular 164 ) to clarify the transition of certain preferential IIT policies after the revision of the IIT Law, e.g., the transition arrangements for IIT treatments for annual bonus and stock options. According to Circular 164, except for the transition arrangements as mentioned in Circular 164, other preferential IIT treatments shall still be valid. (Please refer to CTIE for details of Circular 164.) In this respect, on 29 December 2018, the MOF and SAT jointly released MOF/SAT PN [2018] No. 177 ( PN 177 ) setting out a catalogue of currently enforceable preferential IIT policies. The catalogue includes 88 circulars regulating preferential IIT policies. Meanwhile, it is worth noting that a circular issued in 1980, i.e., Caishuizi [1980] No. 189 ( Circular 189, i.e., Notice regarding certain issues related to IIT payments for foreigners who work in the People s Republic of China (PRC)), which stipulates certain IIT exemptions for foreign experts in cultural and educational fields and other expatriates, is still enforceable according to PN

2 Taxpayers and withholding agents should read PN 177 to review their current tax positions and also consider if corresponding preferential IIT policies are fully utilized. If any position is not certain, consultation with tax professionals would definitely be helpful especially in this time of change. You can click this link to access the full content of Circular 164: You can click this link to access the full content of PN 177: You can click this link to access the full content of Circular 189: Decision on amendments to four laws including the Corporate Income Tax (CIT) Law of the PRC (Chairman Order [2018] No. 23) On 29 December 2018, the Standing Committee of the National People s Congress approved the amendments to four laws including the CIT Law of the PRC (hereinafter referred to as the CIT Law ) during the seventh session of the 13th National People s Congress. The decision on the amendments were announced via Chairman Order [2018] No. 23 ( Order 23 ). Among these, Order 23 made the following changes to Article 51.1 of the CIT Law: The previous Article 51.1 of the CIT law Where a non-resident enterprise derives income as prescribed in Article of the CIT Law, the establishment or premise set up by the non-resident enterprise in the PRC shall be the location of tax payments. Where a non-resident enterprise has set up two or more establishments or premises in the PRC, the enterprise may choose its major establishment or premise to perform consolidated CIT filings upon approval from the tax authorities. (The detailed criteria for major establishment/premise and the approval requirement were stipulated in the Implementation Rules of the CIT Law (hereinafter referred to as the Implementation Rules ).) The updated Article 51.1 of the CIT Law (marked in blue) Where a non-resident enterprise derives income as prescribed in Article of the CIT Law, the establishment or premise set up by the non-resident enterprise in the PRC shall be the location of tax payments. Where a non-resident enterprise has set up two or more establishments or premises in the PRC, the enterprise may choose its major establishment or premise to perform consolidated CIT filings provided that the criteria prescribed by the competent tax authority under the State Council is met. Order 23 also made certain amendments to the PRC Electricity Law, PRC Higher Education Law and PRC Port Law. Order 23 became effective on its promulgation date, i.e., 29 December The updated version of the relevant laws were announced at the same time. Our observations The prevailing PRC CIT Law was first announced on 16 March 2007 during the fifth session of the 10th National People s Congress. It has been amended before on 24 February 2017 through Chairman s Order [2017] No. 64 ( Order 64 ), in order to allow any qualifying donations made by an enterprise exceeding the prescribed cap (i.e., 12% of its annual profit) to be carried forward up to three years following. (Please refer to CTIE for details of Order 64.) The new amendment to the CIT Law announced via Order 23 is a minor change which removes the administrative approval requirement for consolidated filings by non-resident enterprises. After the amendment, non-residents shall be allowed to perform consolidated filings as long as the prescribed criteria at the local level are met. It is expected that the Implementation Rules are also to be amended and released by the State Council. Please stay tuned and we will bring you the most updated news in this regard. 1 Article 3.2 prescribes that, where a non-resident enterprise has an establishment or premise in the PRC, and its China establishment or premise derives China-sourced income, or derives overseas income actually associated with its establishment or premise, such income shall be subject to CIT in the PRC. You can click this link to access the full content of Order 32: You can click this link to access the full content of Order 64: You can click this link to access the full content of the prevailing Implementation Rules: 2

3 The Vehicle Purchase Tax Law of the PRC (Chairman Order [2018] No. 19) On 29 December 2018, the Standing Committee of 13th National People s Congress approved the Vehicle Purchase Tax (VPT) Law of the PRC (hereinafter referred to as the VPT Law ) at its seventh session. Key features of the VPT Law are as follows: Rules and tax rate Each taxable vehicle shall only be subject to VPT once. Purchases of vehicles on which VPT has been paid shall no longer be subject to VPT; VPT rate is 10% (same as the prevailing VPT regulations). Reduction and exemption Vehicles used by foreign embassies, consulates and international organizations in the PRC are exempt from VPT; Vehicles listed in the equipment ordering plan by the Chinese People s Liberation Army and the Chinese People s Armed Police Force are exempt from VPT; National comprehensive fire rescue vehicles with special plates for emergency rescue are exempt from VPT; Non-transport vehicles with fixtures are exempt from VPT; Public buses and trolleybuses are exempt from VPT; Other conditions, in which the State Council allows for VPT exemption or reduction, shall be recorded with the Standing Committee of the NPC. Declaration and payment Taxpayers shall declare and pay VPT before registering the vehicles with the traffic department, which shall be within 60 days from the date of purchase. Tax refunds Taxpayers may apply for refunds of VPT paid if returning the vehicles to the manufacturers or retailers. The refund is based on the amount of VPT paid. From the date of paying VPT to the date of applying for tax refund, the amount of tax refund shall be deducted by 10% for every full year. The VPT Law shall become effective on 1 July The Provisional Regulations of the PRC on VPT which was released by the State Council on 22 October 2000 shall be abolished simultaneously. You can click this link to access the full content of the VPT Law: The Farmland Occupation Tax Law of the PRC (Chairman Order [2018] No. 18) On 29 December 2018, the Standing Committee of the 13th NPC approved the Farmland Occupation Tax (FOT) Law of the PRC (hereinafter referred to as the FOT Law ) at its seven session. Key features of the FOT Law are as follows: Who shall pay FOT? All units and individuals that occupy farmlands to build houses or non-agricultural constructions within the territory of the PRC are FOT taxpayers and shall pay FOT. 3

4 Rates RMB10 to RMB50 per square meter for regions where the per capita farmland does not exceed 1 mu; RMB8 to RMB40 per square meter for regions where the per capita farmland exceeds 1 mu but does not exceed 2 mus; RMB6 to RMB 30 per square meter for regions where the per capita farmland exceeds 2 mus but does not exceed 3 mus; RMB5 to RMB25 per square meter for regions where the per capita farmland exceeds 3 mus. Reduction and exemption Military facilities, schools, kindergartens, social welfare institutions and medical institutions that occupy farmlands are exempt from FOT; The occupation of farmlands by railway lines, highway lines, airfield runways, parking aprons, ports, waterways and water conservancy projects shall be levied with FOT at a reduced rate of RMB2 per square meter; Rural residents occupying farmlands to build new houses for self-use within the prescribed land use standards shall be levied with FOT by half; rural residents who are approved to relocate and the area of newly built houses for self-use does not exceed that of the original houses shall be exempt from FOT; Rural dependents of martyrs, dependents of soldiers who died on duty, disabled soldiers and rural residents who meet the minimum living standards in rural areas and build new houses for their own use within the prescribed land use standards are exempt from FOT; Other conditions in which the State Council allows for FOT exemption or reduction, shall be recorded with the NPC Standing Committee. The FOT Law shall become effective on 1 September The Provisional Regulations of the PRC on FOT which was released by the State Council on 1 December 2007 shall be abolished at the same time. You can click this link to access the full content of the FOT Law: Business circular Notice regarding the Guidelines on Compliance Management of Enterprises Overseas Operations (Fagaiwaizi [2018] No. 1916) On 26 December 2018, the National Development and Reform Commission, State Administration of Foreign Exchange, State-owned Assets Supervision and Administration Commission, Ministry of Commerce, Ministry of Foreign Affairs, People s Bank of China, and All-China Federation of Industry and Commerce jointly released the Guidelines on Compliance Management of Enterprises Overseas Operations (hereinafter referred to as the Guidelines ) via Fagaiwaizi [2018] No The Guidelines consist of eight sections, i.e., the general principle, management requirements, management structure, management schemes, management operation mechanism, risk assessment, valuation and response, review and improvement, and cultural construction for compliance purposes. Altogether, the Guidelines specify the detailed compliance requirements in respect of major overseas operational activities, i.e., foreign trade, outbound investments, overseas contractor projects, and daily overseas operations. Enterprises should refer to the contents in the Guidelines to strengthen their compliance management for overseas business operations. You can click this link to access the full content of the Guidelines: 4

5 Customs circulars PN regarding administrative measures on the place of origin of import and export goods under the Agreement on Trade in Goods under the Framework of the Closer Economic Partnership Arrangement between Mainland and Macao (GAC PN [2018] No. 213) PN regarding administrative measures on the place of origin of import and export goods under the Agreement on Trade in Goods under the Framework of the Closer Economic Partnership Arrangement between Mainland and Hong Kong (GAC PN [2018] No. 214) Pursuant to the Agreement on Trade in Goods under the framework of the Closer Economic Partnership Arrangement between the Mainland and Macao and Agreement on Trade in Goods under the framework of the Closer Economic Partnership Arrangement between the Mainland and Hong Kong (collectively referred to as the Agreements on Trade in Goods ) signed on 12 December and 14 December 2018, the General Administration of Customs (GAC) released GAC PN [2018] No. 213 ( PN 213 ) and GAC PN [2018] No. 214 ( PN 214 ) respectively launching the administrative measures on the place of origin of import and export goods under the Agreements on Trade in Goods. PN 213 and PN 214 specify the criteria for import/export goods that can be considered as originating from the Mainland or Macau/Hong Kong under the respective Agreements on Trade in Goods. PN 213 and PN 214 became effective on 1 January Relevant businesses are suggested to read the Agreements on Trade in Goods and PN 213 or PN 214 for more details. You can click this link to access the full content of PN 213: You can click this link to access the full content of PN 214: You can click this link to access the full content of the Agreement on Trade in Goods (the Mainland and Macao): You can click this link to access the full content of the Agreement on Trade in Goods (the Mainland and Hong Kong): PN regarding the plan for tariff adjustments for year 2019 (GAC PN [2018] No. 212) PN regarding the Customs Tariff of Import and Export Commodities of the PRC (2019) (Customs Tariff Commission PN [2018] No. 11) On 28 December 2018, the GAC released GAC PN [2018] No. 212 ( PN 212 ) regarding the plan for tariff adjustments for year The content of the plan for tariff adjustments for year 2019 is consistent with the Customs Tariff Commission [2018] No. 65 ( Circular 65, i.e. Notice regarding the plan of adjusting provisional tariff rates for import & export of 2019) which was released by the Customs Tariff Commission of the State Council on 22 December (Please refer to CTIE for details of Circular 65.) In addition, the Customs Tariff Commission of the State Council released Customs Tariff Commission PN [2018] No. 11 ( PN 11 ) on 29 December 2018 to announce the Customs Tariff of Import and Export Commodities of the PRC (2019). Both PN 212 and PN 11 became effective on 1 January Relevant businesses are suggested to read PN 212 and PN11 for more details. You can click this link to access the full content of Circular 65: You can click this link to access the full content of PN 212: You can click this link to access the full content of PN 11: 5

6 Other business and customs related circulars recently announced by central government authorities: Notice regarding adjusting the materials import lists of the manufacturing enterprises of Organic Light- Emitting Diode (OLED), related upstream raw materials and parts (Caiguanshui [2018] No. 60) Notice regarding a list of 63 national university science parks eligible for tax preferential treatments for year 2017 (Guokefaqu [2018] No. 337) PN regarding the abolishment of 20 tax certification items (SAT PN [2018] No. 65) Notice regarding matters related to promoting tax service agencies to support the Individual Income Tax reform (Shuizonghan [2018] No. 687) Notice regarding matters related to the administration of the government s non-tax revenues including penalties and confiscates collected by tax authorities (Caishui [2018] No. 161) Decision on the amendments to the Social Security Law of the PRC (Chinaman Order [2018] No. 25) PN regarding the Guiding Catalogue for Industrial Development and Transition (2018 Version) PN regarding the "Guiding Opinions on Regulating Unauthorized Agencies in Different Places of Banking Financial Institutions (Yinbaojianfa [2018] No. 71) Decision on extending the duration of authorizing the State Council to temporarily adjust the implementation of relevant laws and regulations in 33 pilot administrative regions PN regarding the 2019 Catalog of Goods under Export Licensing Administration (MOFCOM/GAC PN [2018] No. 108) PN regarding the 2019 Catalog of Goods under Import Licensing Administration (MOFCOM/GAC PN [2018] No. 107) The Catalog of Dual-use Items and Technologies Subject to Import & Export Licensing Administration (MOFCOM/GAC PN [2018] No. 104) Notice regarding the Implementation Plan on Building the International Tourism and Consumption Center in Hainan (Fagaishehui [2018] No. 1826) 6

7 PN regarding adjusting the Administrative Catalog for Imported Waste (MEE/MOFCOM/NDRC/GAC PN [2018] No. 68) Decision on the revision of certain regulations (MOHRSS Order [2018] No. 38) PN regarding customhouse bonds insurance for centralized tax collection and revolving guarantee (GAC PN [2018] No. 215) PN regarding certain matters related to the supervision on the duty-free shopping policy for tourists departing from Hainan by ship (GAC PN [2018] No. 221) PN regarding certain matters related to the administration of cross-border e-commerce enterprises customs registration (GAC PN [2018] No. 219) PN regarding abolishing one documentary certificate (MOFCOM/GAC PN [2018] No. 109) PN regarding the electronic filing format of declaration forms for online change of electronic data of manifests (GAC PN [2018] No. 217) 7

8 Contact us For more information, please contact your usual EY contact or one of the following of EY s China tax leaders. Office Tax Leaders Martin Ngai (Beijing) martin.ngai@cn.ey.com Fisher Tian (Tianjin) fisher.tian@cn.ey.com Samuel Yan (Dalian/Shenyang) samuel.yan@cn.ey.com Lucy Wang (Qingdao) lucy-c.wang@cn.ey.com Joanne Su (Xi an) joanne.su@cn.ey.com Vickie Tan (Shanghai) vickie.tan@cn.ey.com Raymond Zhu (Wuhan) raymond.zhu@cn.ey.com Audrie Xia (Suzhou) audrie.xia@cn.ey.com Andrew Chen (Nanjing) andrew-jp.chen@cn.ey.com Patricia Xia (Hangzhou) patricia.xia@cn.ey.com Chuan Shi (Chengdu) chuan.shi@cn.ey.com Clement Yuen (Shenzhen) clement.yuen@cn.ey.com Rio Chan (Guangzhou/Changsha) rio.chan@cn.ey.com Jean Li (Xiamen) jean-n.li@cn.ey.com David Chan (Hong Kong) david.chan@hk.ey.com Heidi Liu (Taipei) heidi.liu@tw.ey.com Service Line Tax Leaders Andrew Choy (International Tax) andrew.choy@cn.ey.com Paul Wen (People Advisory Services) paul.wen@hk.ey.com Kenneth Leung (Indirect Tax) kenneth.leung@cn.ey.com Travis Qiu (Transfer Pricing) travis.qiu@cn.ey.com Becky Lai (Tax Policy) becky.lai@hk.ey.com Jesse Lv (Transaction Tax) Jesse.lv@cn.ey.com Samuel Yan (Global Compliance & Reporting) samuel.yan@cn.ey.com Sector Leaders Catherine Li (Financial Services) catherine.li@cn.ey.com Alan Lan (Energy & Resources) alan.lan@cn.ey.com Martin Ngai (Technology, Media, Telecommunications) martin.ngai@cn.ey.com Vickie Tan (Life Science) vickie.tan@cn.ey.com Gary Chan (Real Estate) gary.chan@cn.ey.com Audrie Xia (Consumer Products) audrie.xia@cn.ey.com Walter Tong (Automotive & Transportation) walter.tong@cn.ey.com Raymond Zhu (Government & Public Sector) raymond.zhu@cn.ey.com Greater China Tax Leader Henry Chan henry.chan@cn.ey.com Author China Tax Center Jane Hui jane.hui@hk.ey.com 8

9 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young, China All Rights Reserved. APAC no ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/china Follow us on WeChat Scan the QR code and stay up to date with the latest EY news. 9