Post-Covid Tax Cuts in China—Do you Qualify?

Post-Covid Tax Cuts in China—Do you Qualify?

As the economic aftershocks of the worldwide coronavirus pandemic are still prevalent, the Chinese government has cut an array of taxes and fees for both large and small businesses. The stimulus has focus on industries particularly hurt, such as high-tech manufacturing, foreign trade, and medical equipment.

These tax cuts amount to RMB 550 billion (about $85 billion) and are not schedule to be fully phased out until 2025. As we have written before in this blog series, some of the stimulus measures end in 2023, the other in 2025.

They were announced by Vice-Premier Li Keqiang in Beijing’s 2021 two sessions (NPC & CPPCC National Committee annual sessions) that concluded on March 11th 2021.

Here are some of the tax and fee cuts that may affect you:

VAT Tax cuts:

  • The VAT rate of 3% for small-businesses has been cut to 1% – extended to December 31, 2021.
  • The monthly sales ceiling of VAT exemption for small-scale taxpayers was raised from RMB 100,000 (approx. US$15,400) to RMB 150,000 (approx. US$23,000), meaning that fewer small businesses reach the threshold and thus are given the VAT exemption – policy effective starting January 1, 2021.
  • Certain Chinese and foreign company that invest in research and development are can get a full refund of the VAT charged if they purchase domestically made equipment for their research – policy extended to December 31, 2023.
  • As an incentive, banks or other financial institutions who provide loans to the badly affected small & micro enterprises, small-scale farmers, and solely-owned enterprises, will be exempted from VAT on their interest income. This will help provide the businesses who are most in need of financial assistance with cheap loans – policy extended to December 31, 2023.

Individual Income Tax (IIT)

  • Healthcare workers’ bonuses and temporary subsidies are totally exempt from Individual Income Tax.

Corporate Income Tax (CIT)

  • Donations of cash or the value of material donations towards the coronavirus effort in China by companies are deducted from CIT.
  • Small enterprises with annual taxable revenue of 3 million RMB or less, have maximum of 300 staff, and cannot have more than 50 mill RMB in assets. For taxable revenue of RMB 1 million or less, CIT will be reduced from 5% to 2.5% on taxable income of RMB – runs until December 31, 2022.

Pre-tax Deductions

Any business who purchases new equipment and/or instruments that are RMB 5 million or less are allowed to deduct such expense from their tax burden in this period – extended until Dec 31, 2023.

Stamp Tax

All stamp tax levies on loans between small enterprises & financial institutions issued between Jan 1st 2018 to Dec 31st 2020 exempted – extended to December 31, 2023.

The Manufacturing Sector

The ratio of extra pre-tax deduction for research and development expenses incurred by manufacturing firms has been increased from 75% to 100% – since March 2021.

Manufacturers of non-metallic mineral products, general equipment, special equipment, and computer, communication, and other electronic devices will be refunded the VAT balance daily – since September 2020.

Fee cuts:

To help support the fight against COVID-19, the government is waiving registration fees for medical equipment and medicines related to combatting coronavirus being urgently approved through emergency channels – extended until December 31, 2021.

As part of the drive to spur foreign trade, port construction fees have been removed, although outstanding fees already owed will still need to be paid to the government – scrapped from Jan 1 2021.

Regarding the improvement the foreign trade sector, the government has cut the mandatory payments toward the civil aviation development fund by airline companies by another 20%, making the total reduction of 70% over the payments made before the pandemic measures were introduced around a year or so ago in 2020 – last reduction made on Apr 1 2021.

For the future…

These various tax and fee cuts may be reversed in future, either as the economic situation in China improves or when the time limit on the individual benefit expires.

The cuts may be curtail tax revenue for local council funding in China , but are mainly aimed at small businesses cumulatively employ much of the workforce, as one of the key aims at the two sessions was to reduce unemployment in the coming years.

As you may know, these benefits are not only for domestic Chinese companies, but also for foreign firms and individuals who have a WFOE.

But do you qualify? Click here or call 561-729-6508 for free consultation.

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