Further tax cuts in order to help the success of enterprises operating in China

Date:  2017-05-30    Autor:  ECOIVS Ruide Marketing Team

In order to optimize the business environment and enhance the vitalityof enterprises and motivation for innovation, on 19 April, 2017 the StateCouncil executive meeting chaired by Premier Mr. Li Keqiang made the decisionto introduce the following series of tax cuts.

1.     Continue to advance the reform process of replace thebusiness tax with a value-added tax (“VAT”) and Simplifying the VAT ratestructure.

Since 1 July 2017, the VAT rate is separated into 3 levels of 17%, 11% and6% instead of the previous 4 levels (the 13% rate is cancelled). Agriculturalproducts, natural gas and other goods’ VAT rate is reduced to 11%. Meanwhile, processingenterprise with primary products enjoy the same deductions on their VAT rate duringthe pilot program for the collection of value-added tax in lieu of business tax.

Regarding the aforesaid policy, SAT and Ministry of Finance issued the CircularCaiShui [2017] No.37 on Policies for Simplifying and Consolidating Value-addedTax Rates on 28 Apr. 17.

2.     Further Expand the Scope of Preferential Income TaxPolicies for Small Low-profit Enterprises.

From 1 Jan.1, 2017 to 31 December, 2019, for small low-profit enterprises whose annualtaxable income is between CNY 200k and CNY 500k (inclusive, originally it isCNY 300k), 50% of their income will be included into the taxable income, andthe enterprise income tax will be charged at the rate of 20%.

3.     Increasing the Proportion of Extra Pre-tax Deductionsof Research and Development Costs for Medium- and Small-sized (SMEs) Tech Firms.

In orderto further encourage SMEs to increase R&D input and support scientific andtechnological innovationregarding the actual R&D costs incurredby a medium- or small-sized tech firm from its R&D activities for newknow-how, new product and new technology, an additional 75% (increased from original50%) of the actually incurred costs may be deducted before tax from 1 Jan.,2017 to 31 Dec., 2019

4. Limited partnership venture capitalenterprises with equity investments in non-listed small or medium-sizedhigh-tech enterprises for a time span not less than two years, its taxableincome of enterprise income tax may make a deduction of 70% of the investmentamount.

Piloting ineight comprehensive innovation and experimental areas, including Beijing-Tianjin-Hebei,Shanghai, Guangdong, Anhui, Sichuan, Wuhan, Xi'an, Shenyang, and SuzhouIndustrial Park, from 1 Jan. 2017 a Limited partnership venture capitalenterprises who makes equity investment in a non-listed small or medium-sizedhigh-tech enterprise for not less than two years, its taxable income ofenterprise income tax may make a deduction of 70% of the amount of investment.

From 1July 2017, the main body to enjoy the aforesaid preferential policy is expandedfrom corporate partners to individual partners of corporate and partnership venturecapital enterprise. Investment contributed before 2 years of the aforesaidpolicy coming into effect can also enjoy the above benefits.

5.  Commercial health insurance can be de-
      ducted from the taxable income of
      employees’ personal income tax

For anationwide implementation of the pilot Commercial-Health-Insurance-related personalincome tax policy, from 1 June 2017 the cost for purchasing a commercial healthinsurance product by individuals may be deducted maximum to RMB 2,400 per yearbefore the taxable incomes of personal income tax

6.   A few tax incentives extend to the year-endof


A few taxincentives expired by the year-end of 2016 extend to  year-end of 2019, including:

(i)   theself-owned lands of logistics enterprises (including self-use and rental) forbulk commodity storage facilities, the urban land use tax shall be leviedaccording to 50% of the applicable tax amounts

(ii)  Intereston petty loans granted by financial institutions to peasant households istax-free, and the policy is also applicable to the petty loans granted by alllegally operated petty loan company;

(iii)  Entrepreneurship and employment ofdemobilized soldiers, college or university graduates in a graduation year and areentitled to enjoy the preferential policies of reduction of VAT, UrbanMaintenance and Construction Tax, Education Surcharges and Individual(Enterprises) Income Tax.

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