The Chinese Government adopted several measures for the 2020-2021 Budget, including:
- VAT exempt on a wide range of customer services (medical services, catering, accommodation, public transport, delivery services, some personal services) for an unlimited period.
- CIT and VAT incentives for companies producing medical supplies, used in relation with COVID-19
- Longer tax loss carry-forward period (from five to eight years) for severely affected companies.
Customs/Import and Other Miscellaneous Taxes
- Announcement No. 6 clarifies that imported supplies, donated by domestic and foreign donors and used for prevention and control of the epidemic, can be exempted from import duties, import VAT, and import consumption tax. This relief is valid from January 1 to March 31, 2020. In addition, the preferential treatment also applies to supplies imported by the health administration for the outbreak, even though the supplies are not donated. Tax refunds can be obtained for qualified supplies for which taxes have already been paid.
- Circular 19 extends the February 2020 statutory tax filing deadline to February 24, 2020. This can be further extended by local tax authorities where the outbreak is identified as serious (such as in Hubei province). Affected taxpayers and withholding agents can apply for further extension. Circular 19 also encourages local tax authorities and taxpayers to deal with tax matters online or via mobile application.
Personal income tax
Announcements Nos. 9 and 10 provide the following tax relief measures:
- An individual income tax exemption on receipt of the following types of income: (1) temporary subsidy and bonus received by medical and epidemic prevention staff engaged in prevention and control activities, that are in accordance with prescribed standards of local government authorities; and (2) medicines, medical supplies, protective equipment and other benefit-in-kind, excluding cash, provided by employers to their employees for prevention of COVID-19.
- Full tax deductibility of the following types of donations made by individuals: (1) donations in cash or in kind, made by individuals through non-profit social organizations or governmental authorities at the county level or above or their subordinate departments; and (2) donations in kind, made directly by individuals to designated hospitals undertaking the tasks of the prevention and treatment of COVID-19.
- China’s Ministry of Human Resources and Social Security issued guidance (Announcement No. 7), which provides measures for local social security bureaus and allows enterprises to make catch-up employer social security contributions within a period of three months following containment of COVID-19 outbreak without adversely affecting employee rights to social security benefits.
- In addition, certain local authorities have introduced policies in the respective city/province in order to support local enterprises during the outbreak. These included deferring adjustments to social security contribution base, adjusting employer contribution rate for certain social security plans, extending payment of employer social security contributions, and relaxing the restrictions on applying for refunds of unemployment insurance.
- The Ministry of Finance is allowing local governments to retain 5% more tax revenue from March to June 2020, which is estimated to increase total local revenue by RMB 110 Billion ($16 billion). Local governments have also issued RMB 1.2 trillion in bonds, more than 66% of their quota allocated for 2020.
Defer tax and customs duty filings
Small enterprises and self-employed businesses may defer CIT payment for the period from 1 May 2020 to 31 December 2020 to the first filing period in 2021.
Remote tax handling
Tax authorities in various tax districts have encouraged taxpayers to use "non-contact" remote tax channels and smart tax services such as e-tax bureau, mobile applications, WeChat services, mailing, etc.
- Equipment newly purchased by manufacturers of key epidemic prevention and control materials, in order to expand production capacity, can be 100% expensed in calculating CIT. Under existing rules, expensing is only allowed for purchased equipment with a unit value less than RMB5 million (USD700K).
- The loss carry forward period is extended from 5 years to 8 years for tax losses incurred in 2020. This covers enterprises in the transportation, food catering, accommodation, and tourism (including travel agency and related services, scenic area management) sectors.
- Covid-19 related tax losses, incurred by high-new-tech enterprises and small-and-medium-sized technological enterprises, can be carried forward and offset within 10 years.
- Government subsidies or special funds obtained by enterprises for Covid-19 prevention and control may be exempted from CIT, subject to requirements.
- Reasonable expenditures incurred by enterprises for Covid-19 prevention and control, and related asset losses, can be deducted in calculating CIT.
- For qualified small, low-profit enterprises with annual taxable income of no more than CNY3 million, the effective CIT burden can be reduced to between 5% and 8.4%.
- Research & Development expenditure incurred for Covid-19 prevention and control is entitled to a super deduction of 75% (i.e. deduct 175% of amount spend). Intangible asset outlays are entitled to tax amortization at 175% of the asset cost.
- A full CIT deduction is granted for cash and goods donations for Covid-19 prevention and control. This applies where the donations are made through public welfare social organizations, state governments above the county level and its departments, and other state authorities. Supporting documents can include the public welfare donation certificate, or general payment certificate of non-taxable income.
- Donation of the above items directly to hospitals responsible for Covid-19 prevention and control can be deducted in full. Accepted supporting documents are donation acceptance letters issued by the hospitals.
- Manufacturers of key epidemic prevention and control materials can apply for full refund of carried forward excess input VAT. The refundable amount is the excess over the carried forward input VAT as at the end of December 2019. Refunds can be applied for on a monthly basis.
- Transportation services for key Covid-19 prevention and control materials, public transportation services, life services, and express delivery services are exempt from VAT.
- Exemption for wide range of consumer services (“lifestyle services”), including medical services, catering, accommodation services, and sundry personal services (e.g. hairdressing, laundry)
- VAT exemption for small-scaled taxpayers in Hubei and VAT collection rate reduction (from 3% to 1%) for small-scaled taxpayers in other areas.
- The exemption/reduction is valid until 31 December 2020.
- IIT exemption for temporary work subsidies and bonuses obtained by medical staff and workers participating in Covid-19 prevention and control. The quantum of the subsidies and bonuses needs to be in accordance with the standards set by relevant local governments for exemption to apply.
- Materials (excluding cash) such as drugs, medical and protective supplies given to employees for the prevention of Covid-19 shall not be included in wages and salaries income, and are exempt from IIT.
Import duties and taxes
Imported materials donated free of charge for Covid-19 prevention and control are exempt from import duties and taxes. Import duties and taxes already paid will be refunded.
Donation exemptions are provided for VAT, Consumption Tax, City Maintenance and Construction Tax, Education Surcharges, and Local Educational Surcharges. This applies for donation of goods manufactured, produced and processed on commission, or purchased, where donations are made through the above mentioned channels.
Additional information regarding employment-related measures, economic stimulus measures and other measures.