Tax Incentives for Tech Service Firms, Formula Food Transition Period Extended – China Regulatory Brief
Tax incentives for advanced technology service enterprises rolled out nationwide
The Ministry of Finance (MOF), the State Administration of Taxation (SAT), the Ministry of Commerce (MOFCOM), the Ministry of Science and Technology, and the National Development and Reform Committee (NDRC) jointly released a circular on November 2, 2017, to formally roll out the tax incentives for advanced technology service enterprises (ATSE) nationwide.
According to the circular, corporate income tax (CIT) for a qualified ATSE will be calculated at the preferential tax rate of 15 percent, instead of the standard 25 percent rate. Employee education expenses incurred by a qualified ATSE can also be deducted from taxable corporate income, for up to eight percent of the ATSE’s total salary and wage expenses. Further, the portion exceeding eight percent may be carried to the following tax years for CIT deduction.
With retroactive effect from January 1, 2017, the circular also clarifies the requirements to enjoy the abovementioned tax benefits. Among others, a qualified ATSE must be registered in China and engage in technologically advanced services as specified in the Recognition Scope of Technologically Advanced Services (for Trial Implementation). The enterprise’s income from the technologically advanced services should account for more than 50 percent of its total revenue in the current year, while the enterprise’s income from offshore outsourcing services should be no less than 35 percent of its total revenue in the current year. In addition, at least 50 person of a qualified ATSE’s employees must hold a college degree or above.
Originally launched in the Suzhou Industrial Park in 2016, the tax incentives for ATSE applied to 21 pilot cities in 2014 and another 22 cities in 2016. As a follow-up implementation rule of the general tax cut plan announced by Premier Li Keqiang in August 2017, the circular is regarded as a major tax incentive for service-oriented enterprises, especially those providing technology-related services to clients and affiliates outside China but were not located in the previous pilot cities.
Transitional period to register formula food for special medical purposes extended
The China Food and Drug Administration (CFDA) released an official announcement on November 16, 2017, which grants an extra 12-month grace period for enterprises to comply with the registration requirements on formula food for special medical purposes (FSMP).
According to the announcement, starting from January 1, 2019, enterprises producing FSMP products in China or exporting FSMP products to China should acquire a registration certificate for their FSMP products, the registration number of which should be specified on the label and the product manual. Unregistered FSMP products, however, can still be sold in China until the end of the shelf-life, if they are produced or imported prior to December 31, 2018.
With the Administrative Measures on Registration of Formula Food for Special Medical Purposes, which came into effect on July 1, 2016, the CFDA originally granted enterprises an 18-month transitional period, which would have ended on December 31, 2017. The extension is welcomed by FSMP producers, who now have more time to adjust to the new requirements.
China Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Asia, including ASEAN, India, Indonesia, Russia, the Silk Road, and Vietnam. For editorial matters please contact us here, and for a complimentary subscription to our products, please click here.
Dezan Shira & Associates is a full service practice in China, providing business intelligence, due diligence, legal, tax, IT, HR, payroll, and advisory services throughout the China and Asian region. For assistance with China business issues or investments into China, please contact us at email@example.com or visit us at www.dezshira.com
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
This Dezan Shira & Associates 2017 China guide provides a comprehensive background and details of all aspects of setting up and operating an American business in China, including due diligence and compliance issues, IP protection, corporate establishment options, calculating tax liabilities, as well as discussing on-going operational issues such as managing bookkeeping, accounts, banking, HR, Payroll, annual license renewals, audit, FCPA compliance and consolidation with US standards and Head Office reporting.
Foreign investors often find China’s financial system to be one of the most difficult areas to navigate when establishing or growing their presence in the country. Navigating China’s tax system, and its complexities, requires time and commitment. In this issue of China Briefing magazine, we look at the factors that make China’s tax system unique, and identify steps foreign investors can take to manage its challenges. We first examine the issues that most commonly disorient foreign investors. We then discuss the importance of pre-investment capital planning, within the context of tough foreign exchange controls, before examining the ever-maturing regulations for the transfer pricing system.