China Tax Center. China Tax & Investment Express. Tax circulars

Transcription

1 Issue No June 2015 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 weblink that leads you to the full content of the announcement (in Chinese). Please feel free to contact your Ernst & Young client service professionals for further assistance if you find the announcements have an impact on your business operations. This CTIE does not replace our China Tax & Investment News* which will continue to be prepared and distributed to provide more in-depth analyses of tax and business developments in China. * If you wish to access these previous issues of CTIE and China Tax & Investment News, please contact us. Tax circulars Notice regarding the Administrative Measures for Tax Reduction and Exemption (SAT Announcement [2015] No. 43) China has been going through a reform of its administrative approval system and most of the tax reduction and exemption items that have been subject to approval would be gradually moved into record filing procedures. Thereby, the Administrative Measures for Tax Reduction and Exemption (Trial) (hereinafter referred to as Trial Measures ) announced by the State Administration of Taxation (SAT) through Guoshuifa [2005] No. 129, can no longer meet the needs of tax authorities and taxpayers. To regulate and reinforce the administration on tax reduction and exemption 1, the SAT made revisions to the Trial Measures and announced the Administrative Measures for Tax Reduction and Exemption (hereinafter referred to as New Measures ) through SAT Announcement [2015] No. 43. The New Measures will come into effect on 1 August 2015 and supersede the Trail Measures. Key changes in the New Measures include: The New Measures specify the detailed implementation of record filing requirements for certain tax reduction and exemption items. This will provide taxpayers with clear guidance and facilitate their applications for tax reduction and exemption. A one-off record filing will be accepted during the period when taxpayers are eligible for the tax reduction and exemption, which will reduce the administrative burden of taxpayers. The New Measures simplify the procedures for handling the tax reduction and exemption matters. The New Measures indicate that tax authorities will stress post transaction supervision and administration through robust processes.

2 We will release a new issue of China Tax & Investment News to discuss the New Measures and the relevant implications in greater detail. Please stay tuned. 1 Tax reduction and exemption stipulated in the New Measures refer to preferential tax treatments granted to specific taxpayers or taxable items with a view to mitigate or waive their tax burdens, which include reduction of tax rates, tax basis and tax amounts. Export tax refund and tax reduction/exemption handled by the finance departments will be excluded. You can click this link to access the full content of the New Measures: You can click this link to access the full content of the Trial Measures: Reply to the determination of tax evasion amount for taxpayers with the turnover exceeding the prescribed threshold for small-scale Value-Added Tax (VAT) taxpayers (Shuizonghan [2015] No. 311) Pursuant to SAT Order [2010] No. 22 ( Order 22, i.e., Administrative Measures for General VAT Taxpayer Recognition) and Guoshuihan [2010] No. 139 ( Circular 139, i.e., Notice regarding explanation of certain articles of Administrative Measures for General VAT Taxpayer Recognition), on 11 June 2015, the SAT replied to the request of a state tax bureau at the provincial level about the determination of the amounts of taxes evaded by taxpayers with a turnover exceeding the prescribed threshold for small-scale VAT taxpayers (hereinafter referred to as the threshold ) through Shuizonghan [2015] No. 311 ( Circular 311 ). (Please refer to CTIE and CTIE for details of Order 22 and Circular 139.) Pursuant to Circular 311, the understated turnover identified during a tax audit and the turnover adjusted upward during a tax assessment shall be included in the turnover of the month when the corresponding underpaid/unpaid taxes are filed, for the purpose of determining the annual VAT taxable turnover of a smallscale VAT taxpayer. Where a taxpayer with an annual VAT taxable turnover exceeding the threshold fails to apply for recognition of general VAT taxpayer status within the prescribed time limit, the tax authority in charge shall notify it to perform general VAT taxpayer recognition by issuing a notification of tax matters ( 税务事项通知书 ). If the taxpayer fails to properly comply within the time-limit stipulated in the above notification, their turnover (derived after the expiry of the time-limit) shall be subject to VAT at the applicable general VAT rates (i.e., VAT collection rate of 3% under the simplified calculation method will be denied) without input VAT credits allowed; while their turnover derived before the expiry of the time-limit can continue to be charged at 3% via the simplified VAT calculation method. 2

3 Our observations According to prevailing VAT rules, VAT taxpayers are divided into two categories: general VAT taxpayers and small-scale VAT taxpayers. The criteria of annual VAT taxable turnover for recognition of two types of VAT taxpayers and corresponding VAT treatments are set out in this table: Type of VAT taxpayers Small-scale VAT taxpayers Criteria of annual VAT taxable turnover taxable turnover not exceeding RMB500,000 from production of goods and provision of processing, repair and replacement services VAT treatments Subject to VAT on a simplified calculation method as follows: VAT payable = Turnover VAT collection rate taxable turnover not exceeding RMB800,000 from wholesale and retail businesses VAT collection rate of 3% No input VAT credits allowed taxable turnover not exceeding RMB5 million from VAT taxable services under the VAT pilot arrangements General VAT taxpayers taxable turnover exceeding RMB500,000 from production of goods and provision of processing, repair and replacement services Subject to VAT calculated according to the following formula: VAT payable = Turnover VAT rate Input VAT taxable turnover exceeding RMB800,000 from wholesale and retail businesses VAT rates of 17%, 13%, 11%, 6% or zero rate (zero rate applies to exportation of goods) taxable turnover exceeding RMB5 million from VAT taxable services under the VAT pilot arrangements Input VAT credits allowed Taxpayers with an annual VAT taxable turnover exceeding the threshold are required to apply for recognition of general VAT taxpayer status, unless otherwise prescribed. However, in practice, some taxpayers may fail to do so intentionally or unintentionally and continue to adopt the simplified VAT calculation method at the VAT collection rate of 3%. In this respect, Circular 311 sets out punitive treatments for taxpayers who derive an annual VAT taxable turnover exceeding the threshold but fail to apply for recognition of general VAT taxpayer status within the stipulated time-limit, i.e., these taxpayers shall be subject to the normal VAT rates without input VAT credits. This, together with the local levies that are based on VAT payable, will result in a significant increase in the tax burden on taxpayers. In addition, Circular 311 clarifies that the understated turnover identified during a tax audit and the turnover adjusted upward during a tax assessment shall be recorded in the month when the corresponding underpaid/unpaid taxes are filed, which will form part of the basis for determining whether taxpayers derive an annual VAT taxable turnover exceeding the threshold. Circular 311 further stipulates a lenient treatment that allows taxpayers to adopt the simplified calculation method and pay VAT at 3% on turnover derived before the expiry of the time-limit, i.e. a confirmation of no retrospective effect even if a taxpayer did not comply with the VAT requirement to register as a general VAT taxpayer when an enterprise reaches certain conditions. Although Circular 311 was issued by the SAT as a reply to the request of one of its subordinate tax bureaus, it may still provide technical guidance to help other tax bureaus deal with the same tax matters. Circular 311 was announced via the official website of the SAT, which indicates the SAT s intention to make it public to all its subordinate tax bureaus and taxpayers. Hence relevant taxpayers are encouraged to study Circular 311 and consider the implications it brings about. If in doubt, it is advisable to seek assistance from tax professionals. 3

4 You can click this link to access the full content of Circular 311: You can click this link to access the full content of Order 22: You can click this link to access the full content of Circular 139: Notice regarding the extension of deadline for export tax refund/exemption filings (SAT Announcement [2015] No. 44) To improve services related to export tax refunds, the SAT released SAT Announcement [2015] No. 44 ( Announcement 44 ) on 11 June 2015 to extend the deadline for export tax refund/exemption filings. Announcement 44 clarifies the following matters: Application for extension of export tax refund/exemption filing deadline Export enterprises or other units with export tax refund/exemption filings that are overdue (due to failure to obtain complete documents for the reasons listed below) can apply to their supervising tax authorities for an Extension of Filing Deadline, on or before 31 July 2015, if extension applications have not been lodged before. These enterprises can perform export tax refund/exemption filings before the extended deadline, subject to receiving the confirmation from the state tax authorities with the power to approve export tax refund/exemption claims. Acceptable reasons for overdue submission of documents include: Force majeure such as natural disasters and social emergencies Export tax refund/exemption vouchers being stolen, lost, or wrongly delivered due to mailing issues. Export tax refund/exemption vouchers being seized by relevant judicial and administrative authorities in the execution of their duties. Export tax refund/exemption vouchers being unobtainable on a timely basis, due to economic disputes between the buyer and seller. The corporate responsible persons are deceased, injured, suffering a critical disease or desert their jobs without proper handover procedures being performed, resulting in failure to provide export tax refund/exemption vouchers within the prescribed time-limit. Enterprises having applied to Customs for revision of customs declaration forms for exported goods, but Customs failing to complete the revision before the deadline of the export tax refund/exemption filings. If this results in failure to provide export tax refund/exemption vouchers within the prescribed time-limit, this will be taken into consideration. Documents required for export tax refund/exemption filings being issued by relevant government authorities after the deadline of the filings. Approval for extension of export tax refund/exemption filing deadline The approval for extension of export tax refund/exemption filing deadline lodged by export enterprises or other units in accordance with the above provisions and Article 2 (18) of SAT Announcement [2013] No. 12 ( Announcement 12, i.e., Notice regarding certain matters related to Administrative Measures on VAT and Consumption Tax (CT) Collection for the Export of Goods and Services, ) shall be completed by state tax authorities having the power to approve export tax refund/exemption claims within 20 working days upon receipt of extension applications by state tax authorities in charge. The supervising state tax authorities shall notify the applicants of the outcome of the approval. (Please refer to CTIE and Indirect Tax Alert Issue No for details of Announcement 12.) 4

5 Effective date Announcement 44 came into effect on its promulgation date, i.e., 11 June The requirement that the application for extension of export tax refund/exemption filing deadline lodged by export enterprises or other units shall be subject to approval of state tax bureaus at the provincial level as stipulated in Article 2 (18) of Announcement 12 shall no longer be implemented. Our observations According to SAT Announcement [2012] No. 24 ( Announcement 24, i.e., Administrative Measures on VAT and CT Collection for the Export of Goods and Services), enterprises are required to obtain complete documents and perform export tax refund/exemption filings within each VAT filing period starting from the month following the completion of customs declaration procedures for exported goods till the end of April of the following year. However, enterprises may fail to obtain complete documents within the prescribed time-limit due to various reasons which may result in overdue export tax refund/exemption filings. These enterprises may suffer significant economic losses in this regard. (Please refer to CTIE for details of Announcement 24.) Announcement 44 allows enterprises with overdue export tax refund/exemption filings (due to reasons set out above) to apply for an extension of filing deadline on or before 31 July In addition, the approval authority for the extension is delegated to lower levels (i.e., from state tax bureaus at the provincial level to state tax bureaus having the power to approve export tax refund/exemption claims). The time-limit for the approval process is also set out under Announcement 44. Enterprises with overdue export tax refund/exemption filings should study Announcement 44 carefully and assess their eligibility for extension of export tax refund/exemption filings. Qualified enterprises should take proper actions before the application deadline. If in doubt, consultations with tax professionals are always recommended. You can click this link to access the full content of Announcement 44: You can click this link to access the full content of the Interpretation of Announcement 44 from the SAT: You can click this link to access the full content of Announcement 12: You can click this link to access the full content of Announcement 24: Business circulars Notice regarding the launch of online record-filing for outbound investments and the simplification of deregistration procedures (Shangbanhehan [2015] No. 197) Further to the Administrative Measures for Outbound Investments released through MOFCOM Order [2014] No. 3, in order to facilitate outbound investments, promote administrative efficiency, the General Office of the Ministry of Commerce (MOFCOM) released Shangbanhehan [2015] No. 197 ( Circular 197 ) on 18 May 2015 to launch the online record-filing for outbound investments and simplify the deregistration procedures. (Please refer to CTIE for details of the Administrative Measures for Outbound Investments.) 5

6 Steps for online record-filing Complete the record filing form for outbound investments (hereinafter referred to as the record filing form ) through the outbound investment administrative system (hereinafter referred to as the administrative system. ) Print out the record filing form and affix the company chop on it. Scan the business license of the company and the stamped record filing form and upload the same to the administrative system. Upon completing the above-mentioned steps, the commerce departments under the MOFCOM shall endorse the record filing and issue the certificate for outbound investments provided that the documents submitted are in accordance with the requirements of the Administrative Measures for Outbound Investments. Simplified de-registration procedures Complete the report for termination of outbound investments (hereinafter referred to as the report ) through the administrative system. Print out the report and affix the company chop on it before submitting the same to the supervising commerce department. The supervising commerce department shall complete the relevant procedures and print out the confirmation letter for outbound investment deregistration (hereinafter referred to as the confirmation letter ) through the administrative system. The confirmation letter shall be released to the company to handle other required deregistration formalities such as deregistration with its supervising foreign exchange bureau. Online record-filings for overseas institutions of domestic enterprises and the relevant deregistration procedures shall refer to the abovementioned procedures as well. You can click this link to access the full content of Circular 197: Notice regarding certain policies and measures to promote the development of the medical industry by allowing the society to invest in medical institutions (Guobanfa [2015] No. 45) On 11 June 2015, the State Council released Guobanfa [2015] No. 45 ( Circular 45 ) to promote the development of the medical industry by allowing the society to invest in medical institutions (hereinafter referred to as the medical institutions ). Circular 45 aims to ease market access for the medical industry, e.g., removing and regulating the relevant approval requirements, reducing operation barriers due to approval requirements and limiting the scale of public hospitals. Circular 45 calls for expansion of financing channels for the medical industry and promotion of circulation and sharing of relevant resources such as joint construction/sharing of large scale medical equipment, multi-site practice of doctors, plus optimization of the growth environment for the medical industry, such as including medical institutions in the social medical insurance scheme. 6

7 Furthermore, to encourage the investments of medical institutions, Circular 45 sets out the following tax incentive policies: Medical services provided by medical institutions shall be exempt from Business Tax. Real properties and lands used by qualified not-for-profit medical institutions themselves shall be exempt from Real Estate Tax (RET) and Urban Land Usage Tax (ULUT). Real properties and lands used by qualified medical institutions themselves shall be exempt from RET and ULUT for three years upon the date of obtaining their business registrations. Income derived from qualifying services (e.g., medical services) provided by medical institutions which are recognized as not-for-profit organizations shall be exempt from Corporate Income Tax (CIT) according to the CIT Law. Donations made to qualified not-for-profit medical institutions by enterprises and individuals through qualified charitable social organizations or the People s Governments at the county level or above are deductible for CIT or Individual Income Tax purposes according to the prevailing tax laws. Circular 45 emphasizes that relevant government authorities should stipulate and improve the implementation measures. Investors and businesses should stay alert for further developments. You can click this link to access the full content of Circular 45: Notice regarding the overall plan on construction of a unified social credit code system for legal entities and other organizations (Guofa [2015] No. 33) For the construction of a unified social credit code system for legal entities and other organizations, the State Council released Guofa [2015] No. 33 ( Circular 33 ) on 11 June 2015 to formulate the overall plan. According to Circular 33, the State Administration for Industry & Commerce and its local bureaus shall start the implementation of a unified social credit code system from 1October 2015, while other relevant government authorities shall start the implementation by the end of Under the unified social credit code system, each legal entity/other organization shall be given an 18-digitcode to be served as its ID. Upon the implementation of Circular 33, the relevant government authorities should be granted a transition period until the end of 2017 for existing legal entities and other organizations that are established before the effectiveness of Circular 33 (or by the end of 2020 for certain sectors). During the transition period, the unified credit code system shall be used together with other current coding systems of the relevant government authorities. The relevant government authorities shall establish the mapping relations between the unified credit code system and current coding system, in order to ensure information sharing on the national unified credit information sharing platform and complete the renewal of unified code and relevant certificates for the existing legal entities and other organizations. The unified credit codes of legal entities and other organizations shall be their IDs for their operation and participation of social activities. From an administrative perspective, the use of unified credit codes shall simplify data administration and promote the reform of business establishment system. Existing legal entities and other originations should stay alert to notices being released by local government authorities for the renewal of their relevant certificates. You can click this link to access the full content of Circular 33: 7

8 Other business and tax related circulars recently announced by central government authorities: Notice regarding the follow-up administration on the cancellation of approval procedures for VAT exemption related to the sale of grain by state-owned grain purchasing and selling enterprises (SAT Announcement [2015] No. 42) Reply to issues related to the deduction of compensation paid to employees who depart from jobs of Huawei Group Ltd. for CIT purposes (Shuizonghan [2015] No. 299) Notice regarding optimizing the approval procedures for insurance companies (Baojiantingfa [2015] No. 42) Notice regarding the amendments to the Administrative Measures for Chinese Citizens Travelling to/from the Region of Taiwan (State Council Order [2015] No. 661) Notice regarding the public opinion consultation on the Provisional Measures on the Approval and Supervision on the Certified Public Accountant Firms (Revised Discussion Draft) (Caibankuai [2015] No. 11) Notice regarding the public opinion consultation on the Administrative Regulations on the Investment Projects subject to Governmental Approval and Record Filing Requirements (Discussion Draft) 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 Tracy Ho (Hong Kong) tracy.ho@hk.ey.com Heidi Liu (Taipei) heidi.liu@tw.ey.com Service Line Tax Leaders Andrew Choy (International Tax & Transfer Pricing) andrew.choy@cn.ey.com Paul Wen (Human Capital) paul.wen@hk.ey.com Kenneth Leung (Indirect Tax) kenneth.leung@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 Walter Tong walter.tong@cn.ey.com Author China Tax Center Jane Hui jane.hui@hk.ey.com 9

10 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