China Regulatory Brief: Clarified Tax Policies & Pilot Foreign Investment Reforms

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Sichuan and Guangzhou Substantially Reduce Tax Burden for Enterprises

To stabilize economic growth, the corporate tax burden for enterprises was recently reduced for two major provinces of China; Sichuan and Guangzhou. Sichuan announced that small low-profit enterprises with a taxable income not exceeding RMB100,000 (US$16,130) should pay corporate income tax (CIT) at the rate of 20 percent on only 50 percent of their taxable income. Previously, the CIT rate for these enterprises was 25 percent. Additionally, the province now allows enterprises having difficulty making their social insurance payments to postpone payment for six months. Meanwhile, Guangzhou exempted 32 state-level and seven provincial-level enterprise-related administrative fees starting May 1.

China Clarifies Tax Policy for Importing Aircraft

The Ministry of Finance (MOF), General Administration of Customs (GAC) and State Administration of Taxation (SAT) jointly released the “Announcement on Tax Policies for Leasing Companies’ Importing of Aircraft (Cai Guan Shui [2014] No. 16).” According to the Announcement, imported aircraft whose empty weight is over 25 tons are subject to an import VAT rate of five percent, starting January 1, 2014. A tax refund will be granted to eligible aircraft for which an import VAT of 17 percent has been paid but which have not yet declared input VAT deduction.

Shanghai FTZ Launches Financial Leasing Property Rights Transactions

The Shanghai Free Trade Zone (FTZ) recently held an inaugural ceremony for its financial leasing property rights transaction platform. The platform, the first in China for domestic and overseas financial leasing, is expected to provide support services for related enterprises and widen available channels for investment and financing. Currently, ten major financial leasing companies, including HNA Capital and Far Eastern Leasing, have signed cooperative agreements with the platform.

Pingtan Carries Out Pilot Foreign Investment Reforms

On June 3, the Pingtan Comprehensive Pilot Zone (PCPZ) released the “Simplified Approval Catalog for Foreign Investment Access to the Pingtan Comprehensive Pilot Zone (2014)” and the “Interim Measures for the Administration of Foreign-invested Enterprises (FIEs) in the Pingtan Comprehensive Pilot Zone,” which both took immediate effect. The PCPZ’s simplified approval catalog is the second instance of a negative list approach to foreign investment in China. FIEs not listed in the catalog will be regarded as domestic enterprises and treated as national citizens. The Interim Measures are expected to strengthen the supervision of FIEs and provide them with improved services.

China’s Transportation Accounting Procedures to be Simplified

On May 27, the State Administration of Taxation released the “Announcement on Cancelling and Simplifying Tax Related Reports (Second Version),” which will take effect 30 days after its release. In addition to the 15 tax-related reports cancelled in the first version, 11 other tax-related reports, such as the “Transportation Service Taxpayer Invoice Confirmation Form,” will be abolished. Other reports to be abolished include ones related to the value-added tax (VAT) reform, simplifying procedures for obtaining VAT invoice, and optimizing tax collection procedures.

China and Russia Sign 30-Year Natural Gas Deal

On May 21, China and Russia signed a 30-year, US$400 billion gas deal in Shanghai. The deal, called an “epochal event” by Russian President Vladimir Putin, is expected to enhance the strategic partnership between the two countries. Its terms call for the construction of gas fields and pipelines to carry gas from Russia to China, scheduled to begin in 2018. Further, Putin has proposed to abolish the mineral extraction tax (MET) for gas fields supplying China. A tax exemption for gas imports from Russia is also under consideration, said Chinese President Xi Jinping.

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