Since the last update, a number of tax regulations in China have
been updated due to changes in government policy. Please see below
the summary table we have prepared for you.
What is new?
SAFE Announcement  No.2
Pilot Reform of Foreign Exchange Control System for
International Trade in Goods
This announcement was jointly issued by the State Administration
of Taxation (SAT), the State Administration of Foreign Exchange
(SAFE) and the General Administration of Customs (GAC).
The announcement states that the provinces of Jiangsu, Shandong,
Hubei, Zhejiang (excluding Ningbo) and Fujian (excluding Xiamen) as
well as the cities of Dalian and Qingdao will become pilot areas
for a reform in foreign exchange control system regarding
international trade in goods. The reform aims to simplify foreign
exchange control as well as export VAT refund procedures to
facilitate international trade in goods. Specifically, enterprises
in the pilot areas will no longer be required to go through the
verification and write-off procedures for export proceeds in
foreign exchange. For VAT refund purposes, they will no longer be
required to submit the paper verification and write-off form for
export proceeds in foreign exchange.
A dynamic classified management system will be adopted for
enterprises in the pilot areas. Those rated grade "A" by
the local SAFE are entitled to simplified procedures for paying and
receiving foreign exchange for trade in goods while those rated
grades "B" and "C" are subject to stricter
Also detailed guidelines and implementing rules have been
Circular Caishui  No. 70
Corporate Income Tax treatment regarding financial subsidies
with designated purpose of usage
This regulation clarifies that financial subsidies received from
county-and-above-level Governments are not taxable if (1) they are
supported by a written document issued by the corresponding
Government concerning the designated purpose of usage of such fund;
and (2) the relevant Government has specific administrative
measures regarding such fund; and (3) the enterprise keeps a
separate accounting records for the receipt and usage of the fund.
On the other hand, the relevant expenditure from such non-taxable
fund is not tax deductible.
If such fund has not been used within 5 years, the unused
portion shall be included in the taxable income in the 6th
SAT Announcement  No. 49
VAT invoices not verified within stipulated period
VAT invoices not verified within stipulated period Under the
current PRC tax law, the genuineness of VAT invoices shall be
verified by the tax authority within a certain time period before
the relevant input VAT can be credited. Such period is currently
180 days after the issuance of the VAT invoice. If verification is
not conducted within such time period, according to Article 3 of
the Tax Circular Guobanfa  No. 12, the relevant input VAT can
no longer be credited.
The announcement abolishes the above Article 3. A separate tax
circular will be issued regarding the treatment of VAT invoices
obtained after 1 January 2007 which failed to be verified within
the required time period. Enterprises with such old unverified VAT
invoices may have the chance to make the relevant input VAT
creditable again if the new tax circular would allow so.
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When companies are grouped for payroll tax, they are viewed as one entity for the purposes of payroll tax liabilities.
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