Following the very rapid development of Covid-19 to become a global pandemic, the economic impact on China has been significant, extending from quarantine requirements for staff to postponed work re-sumption, and from reduced consumption in many sectors to massive logistics delays. The State Administration of Taxation in China and local governments have announced a series of measures in an attempt to restore the normal operation of the economy and reduce the negative impact on enterprises doing business in China.
The changes are wide ranging and all enterprises that do business in China should review their application.
Some regions may have introduced special rules or additional concessions may apply. We recommend checking with your RSM China advisor.
New tax regulations have been introduced to:
- Support the national economy;
- Provide social security relief; and
- Stabilize the local business by applying special regulations in Shanghai
A summary of the rules is set out below:
1. Special tax regulations to support the economy stabilization
- Value Added Tax (VAT)
- Income from transporting key protection and control equipment;
- Income from providing public transportation services, daily-life services and courier delivery services for essential living materials; and
- Donations of goods for epidemic prevention and control
Customs and tax exemptions for imported in-kind donations
- Imported in-kind donations which are connected to the control of Covid-19 are exempt from consumer taxes, import VAT and import tariffs during the time period from 1 January 2020 up until 31 March 2020.
Refund of retained VAT at period-end
- Enterprises that produce key protection materials for epidemic prevention and control are eligible for a full refund of retained VAT at period-end (i.e. retained input VAT at 31 December 2019).
- Corporate Income Tax (CIT)
Complete depreciation/complete deductibility for income tax
- Equipment purchased by enterprises to increase capacity to produce key protection materials for epidemic prevention and control;
- Cash and goods donated by enterprises for epidemic prevention and control to qualified social organizations or governments; and
- Goods donated by enterprises directly to hospitals that are responsible for preventing and treating Covid-19.
Loss carried forward
- The carry forward period for losses incurred in 2020 by enterprises in industries significantly affected by the epidemic (i.e. transportation, food and beverage, accommodation, and tourism) is extended from 5 to 8 years.
- Individual Income Tax (IIT)
- Goods distributed by enterprises to individuals such as medicines, supplies and protective equipment etc. for preventing the epidemic.
Deduction possibilities on IIT
- Cash and goods donations by individuals for epidemic prevention and control to qualified social organizations or governments; and
- Goods donations by individuals directly to hospitals that are responsible for preventing and controlling the epidemic.
- Urban Land Use Tax (ULUT) and Real Estate Tax (RET)
Exemption or reduction
- Enterprises in certain sectors that experienced property loss or heavy losses due to force majeure including the epidemic situation may apply for the exemption or reduction of ULUT and RET.
2. Further National Relief for Enterprises on Social Security
In addition to the above tax relief, other policies have been introduced to reduce the cost for enterprises, which are effective from February 2020, as follows:
Pension, unemployment insurance and employment injury insurance
- Small and medium sized enterprises (SMEs) outside Hubei Province and all enterprises inside Hubei Province: The employer’s contribution is fully exempted. The exemption period shall not exceed 5 months (i.e. from February 2020 to June 2020 at latest); and
- Larger enterprises outside Hubei Province: The employer’s contribution is half exempted. The exemption period shall not exceed 3 months (i.e. from February 2020 to April 2020 at latest)
- All enterprises: The employer's contribution is half exempted. The exemption period shall not exceed 5 months (i.e. from February 2020 to June 2020 at latest)
- All enterprises: Postponing contributions to housing funds before 30 June 2020 (Application for relief required)
3. Local special regulations in Shanghai
Small and medium-sized enterprises (SME’s) in Shanghai are also eligible for additional support from the Municipal Government additionally.
- SMEs that are meeting certain criteria and are renting business-operating properties in Shanghai from State-owned Enterprises will be exempted from paying rent for February and March 2020
- Commercial banks are encouraged to grant more credits to SMEs who are significantly affected by the epidemic. The general interest rate will be decreased by a quarter during the epidemic-controlling period.
- For those companies whose cash flow is strongly affected by the epidemic situation, loan-repayment period extensions or repayment postponements can be granted.
- Employers meeting certain criteria who carry out no or limited redundancies in 2020 will be refunded 50 percent of the unemployment insurance contributed for 2019.
- Adjustment of the annual social security calculation base will be postponed to July 2020 (normally adjusted in April). Since the annual adjustment would usually increase the calculation base, postponing it will alleviate the burden on companies. The payment of regular social security contribution could also be postponed for companies strongly affected by the epidemic.
- The employer's contribution ratio of health insurance will be first halved from February to June and reduced by 0.5 per cent from July to December 2020.
- For those companies whose cash flow is strongly affected by the epidemic situation, extensions to make social insurance contribution can be granted until the end of the epidemic status.
SUBSIDY FOR ONLINE TRAINING
- During the suspension of work, the qualified cost incurred by enterprises affected by the epidemic situation on online job training could be subsidized by 95%.
The following points should be noted regarding the above policies:
- The tax concessions and regulations require taxpayers to pay attention to both detailed requirements and specific criteria for eligibility. We recommend that professional advice be sought to ensure enterprises comply with all conditions that are necessary to obtain the tax relief;
- Enterprises that are eligible for tax preferences are required to keep all applicable supporting documents for future assessment, e.g. receipts and valid invoices for donations and equipment purchases;
- Social security policies are published at national level as general guidance. The implementation may vary in different municipalities. Therefore, enterprises should pay attention to the local implementation of the rules in order to optimize the utilization of the measures; and
- The above measures are aimed to alleviate the burden of enterprises and industries that are strongly affected by the epidemic. As the scope of the measures is currently strongly limited, we are anticipating that the policy scope will continue to be specified but also that additional relief measures will be announced.
New rules are likely to be introduced over coming months, and for any questions or updates in relation to the new rules in China please contact feel free to reach out to Wilson Zhang (Tax Partner) or Jessie Yang (Tax Director).