China Tax Center China Tax & Investment Express

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1 Issue No March 2017 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 Report on the Work of Government (2017) Synopsis At the fifth Session of the 12th National People s Congress (NPC), on 5 March 2017, Li Keqiang, Premier of the China State Council, delivered the Report on the Work of the Government (2017) (hereinafter referred to as the 2017 Report ), in which he reviewed the economic and social development in 2016 and reported the main targets, tasks and measures for

2 The key features of 2017 Report are summarized as follows: The major work/achievements in tax and business fields in 2016 Extended the launch of Value-added Tax (VAT) Pilot Arrangements Deepened Resource Tax (RT) reform and launched pilot RT reform on water resource in Hebei Province Replaced the approval system by record-filing mechanism for the establishment and alteration of foreign investment enterprises (FIEs) (except for certain foreign investments subject to special access control) Copied and rolled out a batch of reform arrangements implemented in the existing Pilot Free Trade Zones (PFTZs) and established seven new PFTZs 1 Abolished a list of 165 items subject to administrative approval of local governments designated by the central government; cleaned up and regulated a batch of 192 agency service items related to administrative approval, etc. Released various measures for reducing enterprises costs The main targets, tasks and measures in 2017 VAT Implement and improve policies related to the final stage of VAT Pilot Arrangements Simplify and unify the applicable VAT rates (from four 2 levels to three) Corporate Income Tax (CIT) Expand the scope of small and micro-sized enterprises (SMEs) eligible for the preferential CIT treatments 3, i.e., qualified SMEs will be expanded from those with annual taxable income of RMB300,000 or below to SMEs with annual taxable income of RMB500,000 or below Qualified technology-based small and medium-sized enterprises will be entitled to super deduction of 75% on qualifying R&D expenses actually incurred Various charges/funds/fees Further clean up and regulate governmental funds Remove/cease the collection of 35 items of enterprise-related administrative charges imposed at the central level Reduce certain enterprise-related operational charges under the administration of government pricing Reduce the rates of endowment insurance, medical insurance, unemployment insurance, employment injury insurance, maternity insurance and housing fund Further promoting the transformation of government functions Extend the implementation of list-based management system ( 清单管理制度 ) Expand the pilot areas entitled to the Negative List for Market Admission mechanism Remove license requirements on a batch of production/services Deepen the business registration reform 2

3 Create a sound market environment for FIEs Revise the Catalog for the Guidance of Foreign Investment Industries by further relaxing the restrictions on FIEs entry into the service, manufacturing and mining industries Support the FIEs listing and issuance of bonds in China, allow FIEs to participate in the national science and technology programs Ensure that FIEs will enjoy the same treatments afforded to domestic enterprises in terms of qualification recognition, standardizations, etc. Local governments are empowered to promulgate preferential policies to attract foreign investments We believe that in the near future after the NPC and Chinese People s Political Consultative Conference, central and local governments may announce the relevant incentives. Businesses are highly recommended to stay close with their tax consultants and proactively communicate with supervising tax authorities so as to fully enjoy the relevant preferential treatments. We shall keep you posted if there is any development. 1 The seven new PFTZs include the PFTZs in Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shanxi. 2 The existing applicable VAT rates are 17%, 13%, 11% and 6%, depending on different VAT taxable activities. 3 The preferential CIT treatments for SMEs are both the 50% reduction of CIT taxable income and the reduced CIT rate of 20%. You may click this link to access the full content of 2017 Report: Public notice (PN) regarding the 2016 first batch of charitable social organizations eligible for the deduction of charitable donations for income tax purposes (MOF/SAT/MCA PN [2017] No. 23) Synopsis According to the CIT Law of the People s Republic of China ( PRC CITL ) and its Implementation Rules, as well as Caishui [2015] No. 141 ( Circular 141, i.e., Notice regarding administrative measures after the cancellation of approval for the recognition of qualifying charitable organizations through which charitable donations made are deductible for income tax purposes), the Ministry of Finance (MOF), State Administration of Taxation (SAT) and Ministry of Civil Affairs (MCA) jointly released MOF/SAT/MCA PN [2017] No. 23 ( PN 23 ) on 18 January 2017 announcing the first batch of charitable social organizations (hereinafter referred to as CSOs ) through which charitable donations are deductible for income tax purposes for year (Please refer to CTIE for details of Circular 141). Pursuant to Article 9 of the PRC CITL promulgated in 2007, charitable donations made by an enterprise are deductible for CIT purposes for an amount up to 12% of its annual profit calculated in accordance with the PRC Accounting Standards, any excess amount would not be deductible. On 24 February 2017, the Standing Committee of the NPC made amendment to this article by stipulating that, any amount in excess of 12% of the annual profit is allowed to be carried forward to the following three years for CIT deduction 4 (hereinafter referred to as three-year carry forward mechanism ). It should be noted that the three-year carry forward mechanism applies to qualifying charitable donations incurred by enterprises from 1 September 2016, which is consistent with the effective date of the Charity Law of the People s Republic of China ( PRC Charity Law ) 5. 4 Please refer to decision regarding the amendment to the PRC CITL (Chairman s Order [2017] No. 64) 5 Source: You may click this link to access the full content of PN 23: You may click this link to access the full content of PRC Charity Law: 3

4 Business circular Notice regarding the Development Plan of Service Trade during the 13th Five-Year Plan Period Synopsis During the 12th Five-Year Plan period, i.e., 1 January 2011 to 31 December 2015, China s service trade had grown rapidly, in which the imports and exports grew by 15.7% per annum. There s no doubt that service trade has played a critical role in supporting the transformation and upgrade of foreign trade and served as a carrier for promoting entrepreneurship and innovation. Nevertheless, the service trade in China is still facing big challenges, for instance, it is less competitive in the international market and the trade deficit is surging. To promote the comprehensive development of service trade, On 2 March 2017, the 13 Ministries and Commissions including the Ministry of Commerce, SAT and General Administration of Customs jointly released the Development Plan of Service Trade during the 13th Five-Year Plan Period (Development Plan) which applies to the 13th Five-Year period, i.e., from 1 January 2016 to 31 December The Development Plan states that China will strive to reach a higher annual average growth in service trade than the average growth of global service trade, with an increasing weight of export services such as technology and knowledge intensive services and high value-added services. In this respect, the Development Plan calls for improving the administration mechanism, optimizing industrial structure, promoting growth of business entities, encouraging innovation, expanding opening-up and cooperation, as well as improving supervisory system. The Development Plan sets forth actions to relax restrictions on foreign investors access to the service industry as follows: To promote further opening-up of service sectors such as finance, telecommunication, education, culture, etc. To gradually relax the access restrictions on sectors such as child and elderly care, architectural design, accounting and auditing services, commercial and trade logistics, etc. In addition, the administrative procedures on foreign investments will be further streamlined by adopting the Pre-establishment National Treatment Mechanism and Negative List management mode. These measures are in line with the spirit of Guofa [2017] No. 5 ( Circular 5, i.e., Notice regarding measures for further opening-up of market access and utilization of foreign capital), which establish a new tone to further enhance China s opening-up strategy. The Development Plan also puts forward certain supporting measures, including measures on improving business environment, the relevant systems and cooperation mechanism. The major tax-related policies that shall be taken to promote service trade include: Export of qualifying services shall be entitled to zero VAT treatment or VAT exemption in accordance with the prevailing provisions. Enterprises recognized as Technologically Advanced Service Enterprises shall be eligible for the relevant preferential tax treatments. To promote VAT refund on goods purchased by foreign tourists 4

5 The Development Plan sets out 24 fields as the key development fields such as logistics, energy services and international service outsourcing. You may click this link to access the full content of the Development Plan: You may click this link to access the full content of Circular 5: Other business, customs and tax related circulars recently announced by central government authorities Notice regarding the "Guidelines on Provision of Tax Services and Administration of Real Estate Transactions" (Shuizongfa [2017] No. 4) Notice regarding the "2017 Catalog of Goods under Automatic Import Licensing Administration" (MOC/GAC PN [2016] No. 84) Administrative Measures on the Place of Origin of Imported Goods under Special Preferential Tariff Treatments for the Least Developed Countries (GAC Order [2017] No. 231) PN regarding a list of regional blocs applicable to the "Administrative Measures on the Place of Origin of Imported Goods under Special Preferential Tariff Treatments for the Least Developed Countries" (GAC PN [2017] No. 11) 5

6 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 David Chan (Transaction Tax) david.chan@hk.ey.com Samuel Yan (Global Compliance & Reporting) samuel.yan@cn.ey.com Sector Leaders Henry Chan (Financial Services) henry.chan@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 6

7 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