On February 7, the Ministry of Finance and State Taxation Administration unveiled three key documents laying out a series of preferential policies related to corporate income tax, value-added tax, and individual income tax.
The three documents introduce new deductions, tax exemptions, and subsidies to stimulate action in three critical areas related to fighting the coronavirus outbreak. These are:
- Supporting the production capacity of businesses;
- Encouraging cash or material donations to fight the epidemic; and
- Supporting the medical staff and anti-epidemic workers.
These are the latest measures to be introduced against a backdrop of an increasing assortment of policies released to relieve the immediate pressure on individuals and businesses to meet their tax obligations.
Already, the State Taxation Administration has extended the period of tax declaration in February and the General Administration of Customs has temporarily extended the deadline for tax payments.
Further, regional tax measures have also been released in Shanghai, Beijing, Guangzhou, Hunan, and Shandong, among others, that complement the newly released national measures.
Foreign investors are advised to contact their local professional adviser to determine the exact tax preferential policies that may apply to them and their business.
Tax deductions, refunds, and exemptions to support business production capacity
Subject to [Ministry of Finance and State Administration of Taxation Announcement No. 8 of 2020] enterprises producing key supplies and materials can receive a one-time full deduction on their corporate income tax on facilities payments.
Eligible enterprises can also apply to the competent tax authorities on a monthly basis to fully refund the incremental VAT credit incurred after completing the current VAT tax declaration period within the VAT tax filing period.
The list of production enterprises that are eligible is to be determined by the provincial government, National Development and Reform Commission (NDRC), or the Ministry of Industry and Information Technology.
Income derived from transporting key emergency supplies are also able to receive a value-added tax exemption. This includes the provision of some public transport services, living services, and courier delivery services.
The longest carryover period of losses that can be incurred by enterprises in difficult industries affected by the epidemic in 2020 is now 8 years, extended from 5 years. According to [STA Announcement No.4 of 2020] released on February 10, enterprise must submit an electronic statement for extending the period of loss carryover.
However, judgment for enterprises in industries that are experiencing heightened difficulties during this time, such as those in transportation, catering, accommodation, and tourism (travel agency and management of tourist attractions), will be reserved and implemented in accordance with the current National Economic Industry Classification.
The income from the main business of enterprises in difficult industries in 2020 must account for more than 50 percent of the total income (excluding non-taxable income and investment income) to be eligible.
Donations made to non-profit organizations and government departments eligible for full deduction on taxable income
Under [Ministry of Finance and State Taxation Administration Announcement No. 9 of 2020] any individual or enterprise that donates cash or materials used to respond to the coronavirus disease outbreak through non-profit social organizations, government at or above county level, or their departments, are able to enjoy a full deduction on their corporate income tax or individual income tax.
Full deductions on corporate income tax or individual income tax are also eligible for enterprises that donate items for epidemic control directly to hospitals. Donors can use the donation acceptance letter issued by the hospital undertaking the epidemic prevention task, to claim the deductions.
In addition to this, enterprises, individual industrial and commercial households that donate self-produced, commissioned, or purchased goods through the eligible channels mentioned above, can receive exemptions on their value-added tax, consumption tax, urban maintenance and construction tax, and education surcharge.
Medical personnel benefit from individual income tax exemptions
Subject to [Ministry of Finance and State Taxation Administration Announcement No. 10 of 2020] temporary work allowances and bonuses obtained by medical personnel and other public health workers participating in the epidemic prevention and control in accordance with the standards set by the government are exempt from personal income tax.
Physical objects (excluding cash) issued by the unit to individuals for the prevention of pneumonia caused by the new coronavirus are not included in wages and salaries and are exempt from personal income tax.
This announcement is to apply retrospectively from January 1, 2020, and the deadline will be announced separately depending on the epidemic situation.
Regional tax measures released alongside national measures
Many regions have also introduced further tax policies to assist local businesses during this period of coronavirus prevention and control.
For example, in Beijing, small and medium enterprises (SMEs) can apply for deferred tax payments of up to three months if they have trouble in tax filing and payments.
Shanghai SMEs are exempt from paying rent in February and March on state-owned assets for production and operation that are badly affected by the epidemic and allow commercial property owners to apply for a reduction in property tax or land use tax.
Finally, eligible enterprises in Guangdong are able to receive urban land use tax exemption, as well as able to defer filing and paying taxes for up to three months.
As the epidemic is still undergoing a process of control and prevention, we expect more central and local government policies on fiscal and tax policies to be released within the next few weeks.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.