CMS, China | Chinese Tax Regulation Update | April 2018





CMS, China

Dear Sir or Madam,

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

Kind regards,
CMS, China

Circular
Number
Issuance
Date
Effective
Date
Topic What is new?

Caishui [2018] No. 27, jointly released by Ministry of Finance (“MoF”), State Administration of Taxation (“SAT”), National Development and Reform Commission (“NDRC”) and Ministry of Industry and Information Technology (“MIIT”)

2018-03-28 2018-01-01 Preferential Corporate Income Tax (“CIT”) policies for integrated circuit manufacturers This Circular can be regarded as an extension of the old circular Caishui [2012] No. 27 (“Old Regulation”) which expired on 31 December 2017.  The key updates of the Circular, compared with the Old Regulation, are as follows:

1. For integrated circuit manufacturers (1) which were established before 31 December 2017 with an operation period of more than 15 years and produces integrated circuit products with the line width of less than 0.25 micrometre or has a total investment above RMB 8 billion, and (2) which were established before 31 December 2017 and produces integrated circuit products with the line width of less than 0.8 micrometre, the “two-year exemption and three-year half-reduction” policy is still valid from the first profit-making year if such preferential policy is not yet enjoyed by the companies under the Old Regulation.
   
2. The Circular has introduced new preferential CIT treatments applicable to qualified integrated circuit manufacturers established after 1 January 2018.
     
  1) Integrated circuit manufacturers established or new integrated circuit projects launched after 1 January 2018, which, with an operation period of more than 10 years, produce integrated circuit products with the line width of less than 130 nanometres, can enjoy the “two-year exemption and three-year half-reduction” policy (i.e., exempt from CIT for the first two years and subject to 12.5% CIT from the third year to the fifth year).
     
  2) Integrated circuit manufacturers established or new integrated circuit projects launched after 1 January 2018, which, with an operation period of more than 15 years, produce integrated circuit products with the line width of less than 65 nanometres or have a total investment above RMB 15 billion, can enjoy the “two-year exemption and three-year half-reduction” policy.
   
  For integrated circuit manufacturers, the preferential period shall be calculated from the first profit-making year. For integrated circuit projects, the preferential period shall be calculated from the first year during which revenues are generated. Besides, for qualified integrated circuit projects, the enterprise that launches the projects shall meet the requirements outlined in the circular Caishui [2016] No. 49 and the financial data of the integrated circuit projects should be clearly separate from other business activities.
Caishui [2018] No. 17 2018-03-02 2018-01-01 Deed Tax (“DT”) policies of corporate restructuring This Circular can be regarded as an extension of the old circular Caishui [2015] No. 37 (“Old Regulation”) which expired on 31 December 2017. The validity period of the DT policies of corporate restructuring are now extended to 31 December 2020.

The existing DT policies of corporate restructuring under the Old Regulation have been fully inherited by the Circular. Besides, the Circular makes it clear that the situation where the parent company increases capital in its wholly-owned subsidiary by contributing land use right and real estate shall be treated as “internal asset transfer”, which is exempt from DT.
Caishui [2018] No. 32 2018-04-04 2018-05-01 Adjustment of VAT rates

As an effort to reduce the overall tax burden, the PRC government has decided to adjust the current VAT rates as follows from 1 May 2018:

  • For taxable sales activities and import of goods which are currently subject to 17% or 11% VAT, the applicable VAT rates will be reduced to 16% and 10% respectively.
       
  • For taxpayers purchasing agricultural products which are currently subject to VAT deduction rate of 11%, the VAT deduction rate will be reduced to 10%.
       
  • For taxpayers purchasing agricultural products for the purpose of further production and sales as well as contract processing of taxable goods which will be subject to 16% VAT, the deduction rate for input VAT calculation will be adjusted to 12%.
       
  • For exported goods which are currently subject to 17% VAT and the VAT refund rate of 17%, the VAT refund rate will be adjusted to 16%.  For exported goods and cross-border services which are currently subject to 11% VAT and the VAT refund rate of 11%, the VAT refund rate will be adjusted to 10%.
    Caishui [2018] No. 33 2018-04-04 2018-05-01 Unified revenue threshold of small-scale VAT payers Up till now, different revenue thresholds have applied to manufacturers, trading companies and service providers for assessment of the small-scale VAT payer status.  Starting from 1 May 2018, however, the upper limit of annual taxable revenue for small-scale VAT payers of all industries shall be unified to be RMB 5 million.

    In addition, the existing general VAT payers can be changed into small-scale VAT payers by 31 December 2018.  Any input VAT not yet used for credit by these taxpayers shall be transferred into cost.

    SAT Announcement [2018] No. 14

    2018-04-04 2018-05-20 Simplified administrative requirements  on master files of transfer pricing documentation This Announcement sheds light upon simplified administrative requirements regarding the submission of the master file, which is part of the contemporaneous transfer pricing documentation package under the administration of SAT Announcement [2016] No. 42.

  • According to the Announcement, if an enterprise group is required to prepare the master file according to the regulations and the group entities in China are under jurisdiction of more than one tax authority, the group may choose one in-charge tax authority to voluntarily submit the group master file.  When any other enterprise of the group in China is required by its in-charge tax authority to submit the master file, this enterprise can be exempted from re-submission by formally providing a written report to its in-charge tax authority to clarify that the master file has already been submitted by its related party in China.
       
  • However, the above simplified administrative procedures only apply to the situation of “voluntary submission”. “Voluntary submission” refers to the situation where an enterprise submits the master file before the tax authority initiates special tax investigations.  In other words, if an enterprise is required by the tax authority to submit the master file during a special tax investigation, the enterprise cannot be exempted from submission even though its related party may have already submitted the master file to another in-charge tax authority in China.

    This information is provided for general information purposes only and does not constitute legal or professional advice.  Copyright by CMS, China.

    For further information, please contact:

    Gilbert Shen
    Counsel
    Head of Tax Practice Area Group
    CMS, China
    T
    +86 21 6289 6363

    F
    +86 21 6289 0731
    E
    gilbert.shen@cmslegal.cn

     


    This information is provided for general information purposes only and does not constitute legal or professional advice. Copyright by CMS, China.

    CMS, China
    “CMS, China” should be understood to mean the representative offices in Mainland China of CMS Cameron McKenna Nabarro Olswang LLP, CMS Francis Lefebvre Avocats and CMS Hasche Sigle, working together. CMS, China is a member of CMS Legal Services EEIG, a European Economic Interest Grouping that coordinates an organisation of independent member firms. CMS Legal Services EEIG provides no client services. Such services are solely provided by the member firms in their respective jurisdictions.

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