CMS, China | Chinese Tax Regulation Update | September 2014

Hong Kong

Dear Sir or Madam,

Please find enclosed our update on the latest developments in Chinese Tax Law.

Kind regards,
CMS, China

Topic What is new?
News report (no official circular has been published yet) n.a. 2014-01-01 State Council encourages accelerated depreciation of fixed assets before CIT

It has been reported by various newspapers that the Standing Committee of the PRC State Council has made a decision on 24 September 2014 to adjust the tax deduction policy in respect of fixed asset costs and depreciation in order to encourage investment in fixed assets. The details are reported to be as follows:

  • For all industries, in respect of equipments which were/are acquired after 1 January 2014 for R&D purposes, if with a unit price of below RMB 1 million, the entire costs can be deducted before corporate income tax (“CIT”) during the purchasing year. In case the unit price is above RMB 1 million, the depreciation can be done within a period which is 40% shorter than the minimum depreciation period required by the current CIT Law or, as an alternative, the depreciation (for CIT purpose) shall be accelerated by using the “double declining balance” method (双倍余额递减法).

  • For all industries, in respect of fixed assets with a unit price of not above RMB 5,000, the costs of such fixed assets can be deducted in one lump-sum before CIT during the year. (It is unclear whether such policy also applies to assets purchased before 1 January 2014).

  • For certain selected industries, the tax depreciation period of the fixed assets purchased after 1 January 2014 can be shortened by 40% as compared with the minimum depreciation period required by the current CIT Law. Alternatively, depreciation (for CIT purpose) shall be accelerated by using the “double declining balance” method. For such purpose, the industries mentioned include the bio-pharmaceutical industry, special equipment manufacturing industry, transportation vehicle manufacturing industry, computer, telecommunication and other electronic product manufacturing industries, instrument and meter manufacturing industry, information transmission, software and IT service industries.

It can be expected that the PRC Ministry of Finance and the State Administration of Taxation will soon work out the detailed implementing rules. This policy aims to postpone tax payments by allowing one lump-sum deduction or accelerated depreciation for CIT purposes under certain conditions. As this new policy will affect almost all Chinese companies, it is advisable to follow up with the relevant regulation development.

SAT Announcement [2014] No. 46



New Double Taxation Treaty (“DTT”) between China and the Netherlands coming into force. The SAT announced that the new DTT between China and the Netherlands became effective on 1 August 2014 and shall be applicable to incomes derived on or after 1 January 2015. Among other important changes, the withholding tax rate on dividends has been reduced from 10% to 5%. Further, withholding tax shall be waived by the source-country if the beneficiary owner of the dividends is the government, a governmental institution or a wholly state-owned enterprise.
SAT Announcement [2014] No. 54 2014-08-29 2014-08-29 Special Tax Adjustment – self-adjustment The Announcement clarified that special tax adjustments (e.g. for transfer pricing issues) can be made by tax authorities only after a formal special adjustment investigation is conducted. Under PRC tax law, in order to launch such an investigation, approval from the SAT is necessary.

However, if the tax authorities, by their various monitoring means, find out that a company may have special tax adjustment risks, they may issue a warning notice to the company reminding the latter of such risks. In the meantime, they are entitled to request the company to do a self-check and request certain documentation (e.g. transfer pricing documentation) within 20 days. The company may wish to make a self-adjustment after the internal check. In such case, interest on delayed CIT payment will be based on the standard lending interest rate published by the People’s Bank of China and not 5% plus such rate. However, the Announcement stipulates that the tax authorities are still entitled to launch an investigation despite the self-adjustment.

The Announcement aims to achieve the effect that tax payers (especially foreign invested enterprises) voluntarily make transfer pricing (“TP”) adjustments without formal TP investigations being launched. For fear of being investigated for TP issues, companies may be “forced” to make self-adjustments after receiving a warning notice. Companies with high TP risks shall prepare themselves in this respect with assistance from professional advisors.
Caiguanshui [2014] No. 54 2014-08- 28


Processing Trade – bonded importation of steels abolished Concerned about the over-capacity of the Chinese steel industry, on 2 July 2014 the PRC Ministry of Finance, General Administration of Customs and State Administration of Taxation jointly issued a circular to abolish bonded importation of steel products (with 78 customs tariff codes) under processing trade arrangements. I.e. starting from 31 July 2014, these steels can no longer be imported in a bonded manner. However, for processing trade contracts concluded before 31 July 2014, if the importation is made before 31 December 2014, bonded importation shall still be allowed.

On 28 August 2014, the three authorities issued the new circular to further extend the transitional period. Under the new circular, the new policy shall take effect starting from 1 January 2015. For contracts concluded before 31 December 2014, if the actual importation is made before 30 June 2015, bonded importation shall still be allowed.
Caishui [2014] No. 53 2014-07-30 2014-09-01 Export VAT refund at port of loading Back in 2012, under the tax circular Caishui [2012] No. 14, export VAT refund at the port of loading applied, if (1) the exportation was made by companies with sound tax and customs compliance record (i.e. customs rating of “B” or above, no tax non-compliance records), and, (2) the port of loading was Qianwan Port in Qingdao or Hanyangluo Port in Wuhan, and, (3) the port of export was Yangshan Bonded Port (Shanghai), and, (3) the water transportation was made by three designated ships.

This circular extends the export VAT refund at the port of loading in the following aspects: (1) the applicable exporting enterprises shall have both tax and customs ratings of B or above); (2) the transporting companies shall have a customs rating of B or above and the ships shall be equipped with instruments that enable customs supervision; (3) the applicable ports of loadings are extended to include Longtan Port (Nanjing City)), Taicanggang Port (Suzhou City)), Lianyungang Port (Lianyuangang City), Zhujiaqiao Port (Wuhu City), Chengxi Port (Jiujiang City), Qianwan Port (Qingdao City), Yangluo Port (Wuhan City) and Chenglingji Port (Yueyang City). However, the port of export shall still be Yangshan Bonded Port (Shanghai).

Qualified companies located near these ports may consider applying for export VAT refund at the port of loading to facilitate their export VAT refund claims.

In case you have questions or for further information, please contact:

Charlie Sun
Head of Tax Practice Area Group

CMS, China


T +86 21 6289 6363
F +86 21 6289 0731

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