A posting to the website of the Central Government notes that a plan has been put in place to establish a comprehensive national system for the collection of information on personal income and property holdings. While the set up of the new system has a number of policy justifications, in the tax space it is intended to provide an underpinning for the next wave of planned national tax reforms. The relevant resolution for set up of the new system was adopted at a meeting of the central reform leading group on 23 May 2017.
The plan for the new system has several defined objectives:
(i). Set the scope of personal income and property information to be collected;
(ii). Establish the information management system and relevant standards;
(iii). Put in place mechanisms to allow information to be tracked, and grade and classify information types subject to different degrees of administrative scrutiny;
(iv). Set safeguards for collected information;
(v). Provide legal protections for personal information;(vi). Ensure that information is used in a standardized and secure manner.
At present, personal information on resident individuals is stored and managed by a diverse range of public authorities, with the relevant authority depending on the type of information in point (e.g. information on property holdings is held, inter alia, by the housing administration bureau). The detailed plan of the new system is yet to be published, but it is understood that in future personal information will be better centralized, more complete, and better managed.
The establishment of the new system for collection of information on personal income and property holdings will support the rollout of the Individual Income Tax (IIT) reform and new Real Estate Tax (RET) legislation. As highlighted in KPMG China Tax Weekly Update (Issue 10, March 2017), Mr. Xiao Jie, China’s new Minister of Finance since November 2016, had indicated at a National People’s Congress event in March 2017 that the administration of the new IIT system will be aided by improved collection and big data analysis of taxpayer information.
As early as 2015, the legislative office of the State Council had started to solicit public input on the revised TCA law. According to the revised TCA law, Chinese banks are required to send bulk information on the accounts of taxpayers to the tax administration. This will interlink effectively with the new information management system. See KPMG China Tax Weekly Update (Issue 12, April 2017) for more details.
It should also be noted that, the enhancement of the systems for personal income and property information collection, are being paralleled by China’s swift moves to implement the global “Standard for Automatic Exchange of Financial Information in Tax Matters” (“AEOI Standard”), also referred to as the Common Reporting Standard (CRS). These developments are complementary and allow the Chinese tax authorities to tax both the domestic and overseas income of Chinese residents much more effectively. See KPMG China Tax Weekly Update (Issue 19, May 2017) and (Issue 21, May 2017) for more information about AEOI Standard and CRS.
As highlighted in KPMG China Tax Weekly Update (Issue 21, June 2016), at the time of the major 2016 VAT reform, on 25 May 2016, the State Administration of Taxation (SAT) issued Shui Zong Fa  No. 75, which clarified that:
(i). When a VAT taxpayer purchases goods, services, intangible assets or immovable properties and asks for a VAT special invoice from the seller (i.e. where the buyer is seeking to claim a VAT input credit), it shall provide the seller certain information. This includes, inter alia, the buyer’s name and taxpayer identification number;
(ii). When a consumer purchases goods, services, intangible assets or immovable properties and asks for a VAT ordinary invoice from the seller, he/she does not need to provide the seller with the taxpayer identification number.
On 19 May 2017, the SAT issued Announcement  No.16 (“Announcement No. 16”), setting out further rules on issuing VAT ordinary invoices:
The upshot of this new circular is that tax authorities will, going forward, enhance administrative oversight over VAT ordinary invoice issuance, in addition to the recently increased scrutiny over VAT special invoices.
It should also be noted that the Administrative Measures on Invoices (issued in 1993, latest revision in 2010) provides that, when a seller issues a VAT special invoice, the item description on the invoice must be aligned with the substance of the actual purchase. A buyer must not request the alteration of the description of the goods/services or the amount of payment indicated on the invoice. In practice, however, some sellers (e.g. e-commerce vendors) have been facilitating buyers, through their online sales platforms, to choose the goods/service description they prefer for the invoices. This has resulted in the issuance of invoices that are not aligned with actual business transactions. In a bid to block this, Announcement 16 again reiterates that when a seller issues VAT special invoices, the invoice description and amount must reflect the actual purchase. It this is not the case, the Administrative Measures on Invoices will treat this as an issuance of false invoices, potentially resulting in the confiscation of illegal income and imposition of penalties by the tax authorities. Further criminal penalties may also potentially apply.
On 27 May 2017, the Ministry of Finance (MOF) and the SAT jointly issued Cai Shui  No. 41 (“Circular 41”). This clarifies the Corporate Income Tax (CIT) deduction position for advertising and marketing expenditures, incurred by enterprises engaged in producing or selling cosmetics as well as enterprises engaged in producing drugs and beverages. The clarifications also cover cost sharing arrangements for such expenses. The circular is effective from 1 January 2016 to 31 December 2020.
Circular 41 continues the tax deduction rules set forth in Cai Shui  No. 48 (“Circular 48”) , which was due to expire on 31 December 2015. It specifies the following:
It should be noted that Circular 41 was issued very close (i.e. 3 days before) to the deadline for 2016 annual CIT filing (i.e., 31 May 2017). In light of this, the SAT has provided that if some enterprises have completed their 2016 filings without taking this preferential treatment on board, the enterprise may use the overpaid CIT to offset against the taxable income of the enterprise in the following years or apply for a tax refund. This requires presentation to the tax authorities of a special report or an explanation letter.
* Detailed information on Circular 41, see KPMG China Tax Alert (Issue 18, June 2017).
As highlighted in KPMG China Tax Weekly Update (Issue 18, May 2017) and (Issue 19, May 2017), the MOF, SAT and Ministry of Science and Technology (MOST) in May 2017 jointly issued Cai Shui  No. 34, which provided that, from 1 January 2017 to 31 December 2019, “science and technology-related small and medium enterprises (SMEs)” can obtain enhanced deductions for their research and development (R&D) expenses (i.e., bonus deductions for such enterprises are lifted to 75% from 50% of incurred expenses). The recognition criteria and administrative measures for “science and technology-related SMEs” were set out in Guo Ke Fa Zheng  No. 115.
Subsequently, the SAT on 22 May 2017 issued Announcement  No. 18, providing the implementation guidance, specific to the 2017 to 2019 CIT annual filings, as follows:
* For more information about the R&D “super deduction” policy, you may access the following KPMG publications:
As highlighted in KPMG China Tax Weekly Update (Issue 18, May 2017), the MOF, SAT and China Insurance Regulatory Commission (CIRC) on 28 April 2017 jointly issued Cai Shui  No. 39 (Circular 39”). This clarified that preferential tax treatment for premiums paid to eligible commercial health insurance providers shall be applied on a nationwide basis from 1 July 2017, expanding on the original pilot program in a small number of cities. Under this, premiums paid to eligible commercial health insurance providers are allowed to be deducted up to RMB2,400 per person per year (RMB200/per month) for IIT purposes.
To complement this, the SAT on 19 May 2017 issued Announcement  No. 17, which provides further clarifications:
* For more information and impacts about the preferential IIT treatment for health insurance products, you may access the following KPMG publication:
On 27 May 2017, the Ministry of Commerce (MOFCOM) released the draft Administrative Measures for Establishment and Alteration of Foreign-invested Enterprises’ (FIEs) (“draft measures”) to seek public comment. When it is finalized, it will be final measures in place of Interim Measures for Filing Administration of Establishment & Alteration of FIEs (“interim measures”) issued by MOFCOM in October 2016.
The interim measures provided that, from 1 October 2016, on a nationwide basis, the establishment and alteration of Foreign-invested enterprises (FIEs) shall be subject to recordal filings rather than to pre-approval procedures. This new administrative treatment holds so long as the FIEs in point are not subject to the ‘administration measures for foreign investment access’, i.e., the “negative list” system, the list for which was recently updated.*
Foreign investors investing into non-negative list industries in China simply make a recordal with MOFCOM (or local commerce departments) and may proceed with all of their other registrations (e.g. business registration, forex registration) in tandem. This differs from the old system which required MOFCOM FIE set up approval first, and then allowed the FIE to continue with all the other registrations, which made for a very time consuming process. The negative list covers sensitive industries for which the Chinese government still wants establishment and transfer of FIEs to be subject to a pre-approval process. See KPMG China Tax Weekly Update (Issue 39, October 2016) for details.
In comparison with the interim measures, the following provisions are newly added in the draft final measures:
It is noted that there is no significant change on filing procedures, supervision and inspection as well as the legal liabilities in the draft measures in comparison to the interim measures. The interim measures will be abolished when the draft measures are finalised and are in force.
* Announcement No. 22 clarified that the application of the new special administration measures for foreign investment access (i.e., the “negative list”) must have regard to the relevant provisions specified in Catalogue of Industries for Guiding Foreign Investment (Revision 2015). A revised Catalogue (“2017 Catalogue”) was recently approved by the central reform leading group. The application of the negative list will follow the 2017 Catalogue once it is published.
As highlighted in KPMG China Tax Weekly Update (Issue 18, May 2017), the MOF and the SAT jointly issued Cai Shui  No. 37 on 28 April 2017 to clarify that the VAT brackets will be reduced from four to three from 1 July 2017 onwards, and the 13% rate will be abolished. To adapt to this change, the SAT on 23 May 2017 issued Announcement  No. 19, announcing that the relevant adjustment has been made to the VAT filing forms and will be in force from 1 August 2017.
You may click here to access the full content of the circular.
On 23 May 2017, the SAT issued Shui Zong Han  No. 176 and announced that the paperless management pilot for export tax refund/exemption will be expanded to the whole country effect from the date of issuance of the notice.
You may click here to access the full content of the circular.