As highlighted in KPMG China Tax Weekly Update (Issue 25, June 2018), the proposed amendments to China’s individual income tax (IIT) law (“draft IIT bill”) were sent for deliberation at the third session of the 13th National People’s Congress (NPC) on 19 June 2018. However, it has not yet been adopted by the NPC.
On 29 June 2018, NPC further published the full context of the draft IIT bill on its website to solicit public comments. The key amendments are in line with those previously outlined by Mr. Liu Kun, the Minister of Finance.
Public comments are sought by 28 July 2018, with reports that in excess of 100,000 comments have already been received. The changes to personal deductions and tax brackets would take effect in part from October 2018, and the rest of the changes from January 2019.
With regard to the detailed analysis of the draft bill, please read the following KPMG publications:
In March 2018, China’s State Council announced a one-off refund of accumulated excess input VAT credits for enterprises engaged in advanced manufacturing and research and development (R&D) activities, as well as electrical grid operators.
Access to refunds of excess input VAT credits has long been a source of challenge for businesses in China, particularly those at early stages of development. These normally have to carry forward excess input VAT credits for offset against output VAT, in order to utilize them. Excess VAT credit refunds have already been facilitated for certain industries, such as integrated circuits, aircraft production and certain fuel supply businesses, though have been restricted to certain regions such as Shandong. The expansion of such treatment was therefore welcomed.
The particulars of the new treatment were set out on 27 June 2018 in Cai Shui  No. 70. It has been specified that the following taxpayers are covered:
The refundable amount is limited to the taxpayer’s excess input VAT amount as at the end of 2017. It should be noted that the provincial taxation and finance authorities will determine lists of taxpayers eligible for the refund and the refundable amount for the taxpayers. The refunds will be processed by the end of September 2018.
At an executive meeting of China’s State Council on 25 April 2018, Premier Li Keqiang announced that China would allow the R&D super deduction bonus for R&D payments made to overseas service providers. This is now in effect, retroactively from 1 January 2018.
Under the super deduction, a 150% deduction (i.e. a 50% bonus deduction) is available for eligible R&D expenses. This increases to a 175% deduction for science and technology SMEs. Up until recently, no super deduction was allowed in respect of R&D payments made to overseas service providers.
Under the new Cai Shui  No. 64 (“Circular 64”), issued on 25 June 2018, 80% of the amount of such outbound payments can now qualify for the super deduction. This reflects the 80% cap which has already existed for payments to domestic outsourced R&D service providers. However, a further limitation also exists that the super deduction for outbound payments may only be enjoyed to the extent that they do not exceed two thirds of the total qualifying R&D expenses incurred in China.
Circular 64 also clarifies the following:
For more information about the R&D “super deduction” policy, you may access the following KPMG publications:
On 28 and 30 June 2018, China’s National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) issued NDRC/MOFCOM Order No. 18 and No. 19 in tandem, setting out the revised ‘negative lists’ for foreign investment nationwide (“2018 nationwide list”) and in pilot free trade zones (“2018 FTZ list”). The revisions in the two lists are in line with the direction of the revision that have been set out by the NDRC in April 2018 (see KPMG China Tax Weekly Update (Issue 15, April 2018) and (Issue 16, April 2018) for details).
The 2018 nationwide list will apply from 28 July 2018, replacing the existing 2017 nationwide list set out under the Catalogue of Industries for Guiding Foreign Investment (2017 revisions) (see KPMG China Tax Weekly Update (Issue 26, July 2017) for details). The economic sectors for which foreign investors face limitations are reduced to 48 in the 2018 nationwide list, from 63 in the 2017 nationwide list. Specific timeframes and route maps for opening up of the financial and automotive sectors are also set out. Key developments include:
|Agriculture, energy and resource sectors
The 2018 FTZ list will apply from 30 July 2018, replacing the existing 2017 FTZ list (see KPMG China Tax Weekly Update (Issue 25, June 2017) for details). The 2018 FTZ list will cover all the existing 12 FTZs, including Shanghai, Guangdong, Tianjin, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, Shaanxi and Hainan. The economic sectors for which foreign investors face limitations are reduced to 45 in the 2018 FTZ list, from 95 in the 2017 FTZ list. In addition to the reductions in the limitations on foreign investors made to the nationwide list, the reductions under the new FTZ negative list go even further. In particular, the new list: