As businesses work to respond to the impacts and uncertainties of the novel coronavirus (COVID-19), it’s important to stay on top of the measures that governments are taking in regards to tax deadlines and reliefs, as well as the tax impacts of other business decisions such as employee relocation.
Consider cash-flow management and planning
- Cash flows may come under pressure both during and following the outbreak period. As cash inflows could fall, enterprises will need to actively manage their cash outflows.
- This could include, for example, (1) applying for tax filing and payment extensions when the enterprise runs into financial difficulties; (2) speedily processing tax refunds; (3) determining that tax deductible losses are calculated accurately; and (4) managing the timing of invoicing for VAT/GST purposes.
Watch for tax reliefs, incentives and filing extensions
- In China, national authorities, including the Ministry of Finance (MOF), the State Taxation Administration (STA) and the General Administration of Customs (GAC), together with provincial and local governments, have set out a string of tax reliefs and preferential measures to support enterprises and citizens, including extensions of statutory tax filing deadlines, Corporate Income Tax (CIT) and Value-Added Tax (VAT) incentives and exemptions.
- Other governments in affected areas are also deploying tax incentives and reliefs, and many are considering fiscal stimulus measures that may include tax measures to promote consumption, employment and capital investment. Learn more about specific exemptions and measures in China here - China announces tax relief measures to tackle coronavirus disruption.
Stay abreast of tax policies on donations
- Support in the form of donations from both businesses and individuals to affected communities and to enable medical care has been very strong in places like China. As always, there is a focus on ensuring tax policies do not act as an impediment to such support.
- Announcement 6 gives Chinese domestic enterprises two tax-free donation options. They can either import, tax-free, overseas-purchased supplies for donation, or they can make direct donations out of tax-deferred supplies stored in special customs supervision zones. Enterprises can make direct donations to medical institutions in need in a timely and tax efficient manner.
- Going further, bonded goods that are produced under processing trade arrangements by Chinese domestic enterprises can also be used for tax-free donation.
- Where there may be uncertainty around contracts as a result of this situation, it is advisable to consider obtaining legal advice and then engaging in proactive discussions with contracting parties, recognizing the importance of longer-term relationships and the challenges faced by many businesses in the current environment.
- It is possible that this virus outbreak could be deemed a force majeure event in relation to certain contract obligations in some jurisdictions, particularly in China, where this would be based on precedents during the 2003 SARS outbreak. More information about contract considerations is available here.
Consider employee and related tax requirements
- Businesses that are considering relocating employees from mainland China to work in a different jurisdiction permanently or remotely in the interim period need to be aware of potential individual and corporate tax implications of each arrangement and to consider quantifying associated cost to employees and business ahead of initiating the move.
- When reviewing repatriation or remote working plans, businesses need to take into consideration the potential immigration and tax compliance requirements triggered by such relocations.
- Certain businesses are also implementing alternative and flexible resourcing arrangements during this period, including unpaid or part paid leave entitlements, or compelling staff to take annual leave, or redundancy in more extreme cases. The legal and tax implications of these changes need to be carefully considered.
- To limit the risk of spread of the epidemic, the tax authorities are encouraging taxpayers to deal with tax matters remotely, such as by way of an e-tax bureau and mobile application.
- Challenges with employees needing to work remotely have caused many businesses to consider automation tools so as to conduct business operations in an orderly manner, while protecting the health of employees.