China Continues Offering Tax Incentives to Animation Industry

Jan. 19 – As part of its support for emerging cultural industries, China’s Ministry of Finance and State Administration of Taxation recently announced their intentions to continue the favorable value-added tax (VAT) and business tax (BT) treatment to the animation industry.

According to the “Circular on VAT and BT Policies that Support the Development of the Animation Industry (caishui [2011] No.119)” released on December 27, 2011, qualified animation developers can enjoy a VAT refund and a reduced BT rate.

VAT treatment
For an animation enterprise that is a VAT general taxpayer and sells self-developed animation software, VAT shall be charged at the rate of 17 percent, but the part of VAT that exceeds 3 percent of the taxpayer’s actual tax burden shall be refunded upon collection.

In addition, the export of animation software shall be exempt from VAT.

In order to gain eligibility for the favorable VAT treatment, the aforementioned animation software products shall meet the qualifications specified in the “Circular on VAT Policies for Software Products (caishui [2011] No.100).”

BT Treatment
For the following services provided by an animation enterprise for animation product development, BT shall be charged at a reduced rate of 3 percent:

Animation script composition and compilation
Image/background/animation design
Storyboard making
Animation production
Filming
Line drawing
Coloring
Image synthesis
Dubbing
Soundtrack production
Sound effect synthesis
Clipping
Subtitling
Compression and transcoding (for animations’ format adaption on the Internet and mobile phones)

An animation enterprise’s revenue from domestic animation copyright transfer (including the authorization and re-authorization of the animation brand, image or content) shall also be subject to BT at a reduced rate of 3 percent.

The recognition of the aforementioned self-developed and self-produced animation products by animation enterprises shall be implemented in accordance with the “Administrative Method on Animation Enterprise Recognition (wenshifa [2008] No.51).”

The tax incentives in the new Circular stay effective between January 1, 2011 and December 31, 2012.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China, Hong Kong, India, Singapore and Vietnam. The firm specializes in assisting foreign enterprises with their tax obligations. For further advice and specifics relating to these recent measures, please email china@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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