China Tax Center China Tax & Investment Express

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1 Issue No June 2018 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 Notice regarding the extension of Land Appreciation Tax (LAT) policies for company restructuring and reorganization (Caishui [2018] No. 57) Synopsis In 2015, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly released Caishui [2015] No. 5 ( Circular 5 ) regarding certain preferential LAT policies applicable to companies involved with restructuring and reorganization. Circular 5 was effective from 1 January 2015 to 31 December (Please refer to CTIE for details of Circular 5.) On 16 May 2018, the MOF and SAT jointly released Caishui [2018] No. 57 ( Circular 57 ) to extend the preferential LAT policies from 1 January 2018 to 31 December

2 Key features of Circular 57 are as follows: Preferential LAT policies Restructuring and reorganization Categories Entire restructuring ( 整体改制 ) Details Where a non-corporate company is restructured as a limited liability company (LLC) or a joint stock company (JSC), or an LLC is restructured as a JSC, or a JSC is restructured as an LLC on an overall basis (hereinafter referred to as the entire restructuring), the transfer and alteration of titles of state-owned land use rights, aboveground buildings and their attachments (hereinafter referred to as the real estates ) from the pre-restructuring company to the post-restructuring company, shall not be subject to LAT for the time being. Remarks The provisions of Circular 57 are basically in line with that of Circular 5 except for a more accurate description of immovable assets. Furthermore, according to Circular 57, not result in a change of investors means that the company should be held by the same investors before and after the entire restructuring. However, the ratio of equities held by each investor can be varied. The entire restructuring as stipulated in Circular 57 shall not result in a change of investors of the original company whose rights and obligations will be inherited by the postrestructuring company. Merger ( 合并 ) Where two or more companies are merged into one and the investors of the original companies survive, the transfer and alteration of titles of real estates from the original companies to the merged company shall not be subject to LAT for the time being. According to Circular 57, the investors of the original companies survive means that the investors of the original companies must still be investors of the merged company. However, the ratio of equities held by investors before and after the merger can be varied. Split Where a company is split into two or more while the investors are the same as those of the original company, the transfer and alteration of titles of real estates from the original company to the post-split companies shall not be subject to LAT for the time being. According to Circular 57, the investors are the same as those of the original company means that the companies should be held by the same investors before and after the split. However, the ratio of equities held by each investor can be varied. Investments Where an entity or individual makes investments with real estates during the restructuring and reorganization, the transfer and alteration of titles of real estates from the entity or individual to the investee company shall not be subject to LAT for the time being. Exception Article 5 of Circular 57 further clarifies that the abovementioned preferential LAT policies shall not apply if either one party involving in the restructuring and reorganization is a real estate developing company. Deductible amounts paid for acquiring the land use rights for LAT purposes As is the case with Circular 5, the determination of deductible amounts paid for acquiring the land use rights for LAT purposes is specified in Circular 57 as follows: Where a company re-transfers state-owned land use rights after the restructuring and reorganization and files LAT, the deductible amounts paid for acquiring the land use rights for LAT purposes shall be determined based on the price paid for acquiring the land use rights prior to the restructuring and reorganization plus relevant expenses paid as required by the national policies. 2

3 Where a company re-transfers state-owned land use rights, which were contributed as capital by the state during the company restructuring and reorganization (subject to approval of the national land administration departments at the provincial level or above), and files LAT, the appraised value of state contributed land use rights that is approved by the national land administration departments at the provincial level or above shall be treated as deductible amounts paid for acquiring the land use rights for LAT purposes. When filing the LAT returns, the abovementioned companies should provide the approval documents for contributing the land use rights as capital issued by the national land administration departments at the provincial level or above and the approved appraised value. If they fail to do so, the amounts paid for acquiring the land use rights shall not be deductible for LAT purposes. Documentation requirements for eligibility for preferential LAT policies According to Circular 57, the companies eligible for the various preferential LAT policies should provide the following documents to the supervising tax authorities: Business licenses of the transferor and transferee; Agreements related to the company restructuring and reorganization or other equivalent documents; Relevant certificates to support the titles and the values of the real estates; Supporting documents for the price paid for acquiring the land use rights prior to restructuring and reorganization by the transferor; etc. Interested parties that have the plan on restructuring/reorganization should study Circular 57 carefully and assess their eligibility for preferential LAT policies. At the same time, they should also observe the following prevailing regulations that offers the preferences for other tax matters related to restructuring/reorganization: Caishui [2018] No. 17 ( Circular 17, i.e., Notice regarding the extension of Deed Tax policies for supporting the reorganization and restructuring of enterprises and public institutions) (Please refer to CTIE for details of Circular 17.) Attachment 2 of Caishui [2016] No. 36 ( Circular 36, i.e., Notice regarding the final stage of the Valueadded Tax pilot arrangements). (Please refer to CTIE and Indirect Tax Alerts Issue Nos and for details of Circular 36.) Caishui [2003] No. 183 ( Circular 183, i.e., Stamp Duty Policies related to reorganization and restructuring of enterprises) If in doubt, consultations with tax professionals are always recommended. You can click this link to access the full content of Circular 57: ml You can click this link to access the full content of Circular 5: You can click this link to access the full content of Circular 36: You can click this link to access the full content of Circular 17: ml You can click this link to access the full content of Circular 183: 3

4 Public notice (PN) regarding the issuance of the monthly/quarterly provisional Corporate Income Tax (CIT) return forms (2018 version) (SAT PN [2018] No. 26) Synopsis To ease the administrative burden of taxpayers, the SAT released SAT PN [2018] No. 26 ( PN 26 ) on 17 May 2018 to launch the updated versions of provisional CIT returns for monthly/quarterly filing (type A, 2018) for resident enterprises that are subject to CIT at an actual basis (hereinafter referred to the 2018 Provisional CIT return (Type A) ) and provisional CIT returns for monthly/quarterly filing (type B, 2018) for resident enterprises that are subject to CIT at a deemed basis (hereinafter referred to the 2018 Provisional CIT return (Type B) ). Compared with the previous versions of provisional CIT returns, the structure of both 2018 Provisional CIT return (Type A) and 2018 Provisional CIT return (Type B) are further simplified. Among these, key changes made in the 2018 Provisional CIT return (Type A) include: Simplified return with improved structure The columns for current period amount in the lead sheet (A200000) as well as its schedules are removed. In this respect, taxpayers shall only fill in the aggregated amounts for each item. The amount of data fields of the Schedule A (i.e., the breakdown for fixed assets under accelerated depreciation (deduction)) is reduced from 185 items to 30. In addition, data fields which may result in filling of duplicated information are now combined. Information related to application of preferential tax treatments Contents of schedule A (i.e., the breakdown for preferential treatments such as income exempt from CIT, income subject to deduction for CIT purpose and income subject to CIT reduction/exemption), and schedule A (i.e., the breakdown for preferential CIT treatments) are adjusted to ensure that taxpayers shall apply their eligible preferential treatments in a timely manner. Consolidated CIT filing for enterprises with cross-region business operations For enterprises with cross-region business operations that are required to complete the consolidated CIT filing according to SAT PN [2012] No. 57 ( PN 57, i.e., Administrative Measures for Combined CIT Filing for Cross-region Operations), their branches should complete 2018 Provisional CIT return (Type A) for monthly/quarter and annual CIT filing. (Please refer to CTIE for details of PN 57.) PN 26 shall become effective on 1 July Resident enterprises that file CIT on a monthly basis should use the 2018 versions of returns released via PN 26 starting from their June filing, while resident enterprises that file CIT on a quarterly basis should start using the 2018 versions of returns from the second quarter CIT filing (which are both to be filed in July 2018). By the effectiveness of PN 26, the previous versions of provisional CIT returns shall be superseded. You can click this link to access the full content of PN 26: You can click this link to access the full content of SAT s official interpretation on PN 26: You can click this link to access the full content of PN 57: 4

5 Business circulars: Notice regarding the pilot run of canceling the approval requirements for opening RMB basic account for entities (Yinfa [2018] No. 125) Synopsis Currently, to open an RMB basic account, newly established enterprises (with or without legal entity status) or self-employed industrial and commercial households (hereinafter referred to as entities ) are required to present legal documents (such as their business licenses) and their approval certificates issued by the People s Bank of China (PBOC) for the opening of the basic RMB account to a commercial bank. Although an entity may open multiple RMB bank accounts after the opening of RMB basic account, this RMB basic account is the only account from which the entity can withdraw cash. To respond to Fagaiyunxing [2018] No. 634 ( Circular 634, i.e., Notice regarding key tasks to reduce costs in 2018), on 23 May 2018, the PBOC released Yinfa [2018] No. 125 ( Circular 125 ) to launch a pilot in Taizhou of Jiangsu ( 泰州, including county-level cities/districts within the jurisdiction of Taizhou, Jiangsu) and Taizhou of Zhejiang ( 台州, including county-level cities/districts within the jurisdiction of Taizhou, Zhejiang) (hereinafter referred to the pilot areas ). From 11 June 2018, branches of the PBOC in the pilot areas shall no longer release approval certificates for the opening of RMB basic accounts for entities (except for accounts to be opened by commercial banks as depositors). Instead, the opening of RMB basic accounts shall be subject to the record filing management system. (Please refer to CTIE for details of Circular 634.) Under the pilot, from 11 June 2018, an entity in the pilot area shall submit the relevant documents to a commercial bank for the opening of a RMB basic account. After the procedures for the opening of bank account are completed, the commercial bank should file the information related to the bank account to the local branch of the PBOC via the account management system and submit the relevant photocopies manually to the local branch of the PBOC within two working days. The pilot of cancelling the approval requirements for opening RMB basic account shall further shorten the amount of time required for a newly established entity to start business operations. Although this pilot shall only be launched in a few areas, it is likely to be rolled out to a larger area in a foreseeable future according to the common practice. Please stay tuned and we will bring you further developments in this regard. You can click this link to access the full content of Circular 125: You can click this link to access the content of Circular 634: Notice regarding plan for further deepening reform and opening-up of the China (Guangdong) Pilot Free Trade Zone (Guofa [2018] No. 13) Notice regarding plan for further deepening reform and opening-up of the China (Tianjin) Pilot Free Trade Zone (Guofa [2018] No. 14) Notice regarding plan for further deepening reform and opening-up of the China (Fujian) Pilot Free Trade Zone (Guofa [2018] No. 15) Notice regarding copying and rolling out the fourth batch of reform arrangements implemented in the Pilot Free Trade Zones nationwide (Guofa [2018] No. 12) Synopsis On 4 May 2018, the State Council released Guofa [2018] No. 13 ( Circular 13 ), Guofa [2018] No. 14 ( Circular 14 ) and Guofa [2018] No. 15 ( Circular 15 ) via its official website aiming to further deepen the reform and opening of the China (Guangdong) Pilot Free Trade Zone ( GD PFTZ ), China (Tianjin) Pilot Free Trade Zone ( TJ PFTZ ) and China (Fujian) Pilot Free Trade Zone ( FJ PFTZ ). Since these PFTZs were established in 2015, the government aims to further promote the new reform and accelerate the process of RMB internationalization while the current foreign exchange situation has greatly improved. 5

6 Comparing the three circulars, there are commonalities of the main targets and differences that emphasize local characteristics respectively. Key features are summarized in the table below: Differential strategic positions (by 2020) Commonality GD PFTZ TJ PFTZ FJ PFTZ International shipping hub International trade center Opening-up portal of financial industry Pilot area of new system for open economy The Guangdong-Hong Kong-Macao Bay Area Cooperative Demonstration Zone ( 粤港澳大湾区合作示范区 ) The Jing-Jin-Ji Synergy Development Demonstration Area ( 京津冀协同发展示范区 ) The Cross-Strait Economic Cooperative Demonstration Area ( 两岸经济合作示范区 ) New heights of opening-up cooperation for countries and regions along the Silk Road in the 21 st century Overall objectives Promote the supply-side structural reform Highlighted Plan Entitle the PTFZs a greater degree of autonomy in reform and consistence with international advanced rules. Promote/explore the establishment of an account management system that fits the reform and opening-up of the PTFZs. Establish a single-window system ( 国际贸易 单一窗口 ) to facilitate international trading, which enables companies engaging in international trading to complete the required formalities with multiple relevant government authorities through the single-window system. Furthermore, the State Council released Guofa [2018] No. 12 ( Circular 12 ) via its official website on 23 May 2018 for replicating and rolling out the fourth batch of reform arrangements implemented in the PFTZs nationwide. According to Circular 12, 30 measures that previously implemented in the 11 PFTZs shall be replicated and expanded. Measures to be implemented on a national basis Five measures related to the open-up of services sectors, including international shipping and international shipping agency. Six measures related to investment management sectors, including the innovation of registration for international ships, integration of record filings for foreign trade operators and online registration for general VAT taxpayers. Nine measures related to trade facilitation, including one-off joint inspection by multiple government authorities, inspection system for bonded import metal and mining products. Seven measures related to interim and post event supervision, including online customs enterprise registration and e-port registration. 6

7 Measures to be replicated and expanded in specific areas: Two measures to be replicated and expanded in customs special supervision areas, which include the innovation on supervision in special supervision areas of customs that enterprises shall be able to complete multiple customs related procedures on their own. A measure to be replicated and expanded in customs special supervision areas and bonded logistics centers (type B) which shall allow goods to be transported out of the district before completing customs declaration process. Please stay tuned and we will bring you further developments in this regard. You can click this link to access the full content of Circular 13: You can click this link to access the full content of Circular 14: You can click this link to access the full content of Circular 15: You can click this link to access the full content of Circular 12: Customs circular PN regarding reducing tariffs on imported automobiles and auto parts (Customs Tariff Commission PN [2018] No. 3) Synopsis To further open up the automobile market and meet China s WTO commitment, the Customs Tariff Commission of the State Council released Customs Tariff Commission PN [2018] No. 3 ( PN 3 ) on 22 May 2018 to reduce tariffs on imported automobiles and auto parts from 1 July According to PN 3, from 1 July 2018, 25% tariff levied on 135 items of import automobiles and 20% tariff levied on four items of import automobiles shall both be reduced to 15%. On the other hand, 79 items of import auto parts which are currently subject to tariff at 8%, 10%, 15%, 20% and 25% respectively shall all be reduced to 6%. Detailed HS codes and tariff rates are announced in the attachment of PN 3. You can click this link to access the full content of PN 3: Other tax and business related circulars recently announced by central government authorities: PN regarding the disqualification of certain vehicles currently listed in the Catalog of New Energy Vehicles eligible for Vehicle Purchase Tax Exemption (MIIT/SAT PN [2018] No. 27) Notice regarding matters related to tariff rates of certain commodities under the China-ASEAN Free Trade Agreement (Shuiweiban [2018] No. 11) l Guiding opinions on further promoting the approval services for convenience of public 7

8 Notice regarding matters related to further improving the administration of cross-border cash flow to support the opening-up of the financial market (Yinbanfa [2018] No. 96) Notice regarding the ''Provisional Administrative Measures for Individual Income Tax deferral Commercial Pension Insurance Business (Yinbaojianfa [2018] No. 23) Notice regarding launching the pilot reform of approval system for construction projects (Guobanfa [2018] No. 33) Notice regarding the Guidelines on Data Governance for Banking Financial Institutions (Yinbaojianfa [2018] No. 22) Notice regarding 2018 work plan on public disclosure of governmental affairs (Yinbanfa [2018] No. 95) Supplementary notice regarding 2018 schedule arrangement of information submission by enterprises to the assessment system of technology-based small and medium-sized enterprises (Guokehuozi [2018] No. 64) PN regarding the revised record filing forms for establishment/alteration of foreign investment enterprises (MOFCOM PN [2018] No. 41) 8

9 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 9

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