On 10 April 2018, Chinese President Xi Jinping made a keynote speech at the opening ceremony of the Boao Forum for Asia (BFA) Annual Conference 2018. According to President Xi, China will engage in further opening up of China’s economy, and to put the following measures in place in the near future:
Following on President Xi’s speech, on 11 April, Mr. Yi Gang, governor of the People‘s Bank of China (“PBOC”) announced a string of opening up measures for the financial sector and a timetable for the opening up. The following measures, covering banking, insurance, securities and wealth management sectors, will be implemented in the coming months:
The following measures will be introduced before the end of 2018:
Prior to President Xi’s speech, China had already opened the third-party payment sector to foreign investment. In March 2018, the PBOC set out the access and regulatory policies for foreign investment in payment services sector (see KPMG China Tax Weekly Update (Issue 12, March 2018) for details).
Also, the State Administration of Foreign Exchange (SAFE) issued a statement on 11 April 2018 that it would work with other government authorities to push the reform of the Qualified Domestic Institutional Investor (QDII) regime and improve the macro-prudential management of the program. This can be seen as China taking another step in opening up the financial market.
All of the above-said measures are in line with the commitments that China had made at the China-US economic meeting held in November 2017 as well as the directions for opening up set out by CBRC in December 2017 (see KPMG China Tax Weekly Update (Issue 45, November 2017) and (Issue 49, December 2017) for details).
In the 2016-issued SAT Announcement 42, the State Administration of Taxation (SAT) rolled out the BEPS Action 13 TP documentation structure to China, which consists of the Local File and the Master File, but with an additional Chinese ‘Special Documentation’. Subsequently, on 4 April 2018, SAT issued Announcement  No. 14 (“Announcement 14”), setting out the rules for preparation and submission of contemporaneous documentation. Announcement 14 applies from 20 May 2018.
Building on Announcement 42, Announcement 14 sets out simplified rules for the submission of the Master File. In particular, where a Chinese group meets the threshold to prepare the Master File, and enterprises within the group have in-charge tax authorities located in two or more provinces, the group may select the in-charge tax authority of any enterprise for submission of the Master File.
Where an enterprise of the group is required by its in-charge tax authority to submit the Master File, the enterprise may be exempted from submitting the Master File if an explanation in written form can be provided to the in-charge tax authority. The explanation must show that the company group has initiatively submitted the Master File to another local tax authority elsewhere in China. To avail of this treatment, Master File must have been submitted before the taxpayer is subjected to a special tax investigation on audit.
With regard to the detailed information and the tax impact of Announcement 42, you may read the following KPMG publication:
On 2 April 2018, five authorities jointly issued Cai Shui  No. 22 (“Circular 22”) to pilot preferential individual income tax (IIT) treatment (the so-called “Exemption-Exemption-Taxation system”) for commercial endowment insurance plans. The five authorities include the Ministry of Finance (MOF), SAT, Ministry of Human Resources and Social Security (MOHRSS), China Banking and Insurance Regulatory Commission (CBIRC) and China Securities Regulatory Commission (CSRC).
From 1 May 2018, the preferential IIT treatment will be piloted in Shanghai, Fujian (including Xiamen) and Suzhou Industrial Park for a one year trial period. Circular 22, in particular, clarifies the following:
In the pilot areas, (i) contributions to an eligible commercial endowment insurance plan, which are deposited in an individual retirement account (IRA), are allowed to be deducted for IIT purposes, subject to certain limits. This would make the income contributed to the plan effectively “exempt” at time of contribution; (ii) investment gains generated by the funds in the IRA would be treated as tax exempt; and (iii) IIT would apply when the amounts in the IRA are withdrawn at retirement.
When calculating IIT, the contributions may be deducted as follows:
The premiums paid by taxpayers cannot be deducted when calculating IIT without obtaining the documentary proof issued by the public platform for sharing insurance industry data and information, under the administration of the CBIRC. A list of endowment insurance products that are eligible for the preferential IIT treatment will be issued by MOF, MOHRSS and SAT.
When an individual qualifies to withdraw pension payments, 75% of the payment should be subject to IIT at 10% while the remaining 25% is tax exempt. The IIT on 75% of the pension payments must be withheld by the insurance company.
Circular 22 also sets out the specific rules on the covered taxpayers, the IRA and the information registration on the platform.
Developing this system is seen to be important in the context of China’s aging society. This is also in line with the IIT reform proposed by MOF during the meetings of the National People’s Congress, held in March 2018, in which tax deductions for personal outlays, such as children’s education and medical expenses, were set as goals. Other proposed reform measures include:
(See KPMG China Tax Weekly Update (Issue 10, March 2018) for details).