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China: Overview of corporate income tax rule changes for 2019 tax year

China: Overview of corporate income tax rule changes

The corporate income tax rules in China have been updated for the 2019 tax year.

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At the beginning of 2019, there were new corporate income tax requirements for companies—including multinational corporations—with operations in China. The new rules (first effective for the 2018 tax year) have been updated for the 2019 tax year.

Overview

Changes affecting corporate income tax can be summarized as reflecting the following: 

  • Simplified filing procedures for research and development (R&D) expenses eligible for the “super deduction”
  • Expanded scope for accelerated depreciation of fixed assets, made available for the entire manufacturing sector
  • Extended tax incentive period for integrated circuit design and software enterprises
  • Broadened conditions for eligibility of small micro-profit enterprises entitled to preferential tax policy
    • Redefine small micro-profit enterprises as enterprises with annual taxable income amounts of no more than RMB 3 million, staff headcount no more than 300 persons, and total assets amounts of no more than RMB 50 million
    • Increase the upper limit of annual taxable income for eligible enterprises to RMB 3 million
  • Increased pre-tax deduction limit of service charge and commission fee for assurance enterprises to 18%
  • Preferential policy for Chinese depository receipts, domestically issued by innovation-oriented enterprises


Simplified filing procedures for R&D expenses eligible for “super deduction”

Announcement [2019] No.41 stipulates that when declaring for entitlement to the “super deduction” available for R&D expenses, enterprises are not required to fill in the "Statement of Information of R&D Expenses Allowed for Weighted Deduction for R&D Projects" and submit the "Summary of Subsidiary Accounts for R&D Expenses" from 2019.  Instead, enterprises are to retain the "Summary of Subsidiary Accounts for R&D Expenses" for future tax inspections—thereby streamlining the filing procedures.


Expanded scope for accelerated depreciation of fixed assets

Announcement [2019] No.66 expands the scope of accelerated depreciation of fixed assets from specific key industries to the entire manufacturing sector.  The definition and scope of “manufacturing sector” is to be in accordance with the Industrial Classification and Codes for National Economic Activities (GB/4754-2017).


Extended tax incentive period for integrated circuit design and software enterprises

Announcement [2019] No. 68 extends the period for the tax incentive policy available for qualified integrated circuit design enterprises and software enterprises from 31 December 2017 to 31 December 2018. Specifically, qualified enterprises can enjoy an incentive period with effect from their profit-making year(s) prior to 31 December 2018, and be exempted from corporate income tax for the first two years, and pay corporate income tax based on 50% of the statutory tax rate (25%) for the following three years, until the incentive period expires.


Broadened conditions of small micro-profit enterprises entitled to preferential tax policy

Circular Cai Shui [2019] No. 13 expands the scope of small micro-profit enterprises that are eligible for preferential tax policy. Small micro-profit enterprises engaged in non-restricted and non-prohibited businesses and that satisfy the following criteria are eligible:

  • Annual taxable income amounts of no more than RMB 3 million
  • Staff headcount no more than 300 persons
  • Total assets amounts of no more than RMB 50 million

For eligible small micro-profit enterprises, the applicable corporate income tax rate will be 20%. Meanwhile, the portion of annual taxable income amount, which does not exceed RMB 1 million, will be computed at a reduced rate of 25% as taxable income amount. The portion of annual taxable income exceeding RMB 1 million but less than RMB 3 million will be computed at a reduced rate of 50% as taxable income amount.


Increased pre-tax deduction limit of service charge and commission fee for assurance enterprises to 18%

Announcement [2019] No.72 increases the deduction limit for service charge and commission fee incurred by insurance enterprises from 15% (property insurance) and 10% (life insurance) to 18% of the insurance premium. The term “insurance premium” means the balance of total insurance premium income less surrender payout for the current year.  Also, the amount of service charge and commission fee exceeding the deduction limit can be carried forward and claimed as a deduction in future tax years, without limitation.


Preferential policy for Chinese depository receipts (CDRs) domestically issued by innovation-oriented enterprises

Announcement [2019] No. 52 stipulates preferential tax policies involved in the issuance of CDRs by innovation-oriented enterprises in China at the pilot phase.

  • For corporate investors, proceeds derived by transferring CDRs of innovation-oriented enterprises and dividends derived by holding CDRs of innovation-oriented enterprises are subject to the same taxation method as applicable to proceeds and dividends received from transferring and holding shares.
  • For publicly offered securities investment funds, proceeds derived by transferring CDRs of innovation-oriented enterprises as well as dividends derived by holding CDRs of innovation-oriented enterprises are exempt from corporate income tax.
  • For qualified foreign institutional investors and Renminbi qualified foreign institutional investors, proceeds derived by transferring CDRs of innovation-oriented enterprises and dividends derived by holding CDRs of innovation-oriented enterprises will be deemed as income received from transferring or holding of underlying shares based on the CDRs issued by innovation-oriented enterprises. Hence, such proceeds and dividends are subject to the same taxation method as applicable to income received from transferring and holding the underlying shares.


For more information, contact a KPMG tax professional:

David Ling | +1 (609) 874 4381 | Davidxling@kpmg.com

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