Enterprises Can Enjoy Tax Deductions by Recruiting the Unemployed

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Dec. 13 – China’s new taxation policy to improve the country’s unemployment situation is going to take effect next year. Enterprises that meet certain criteria will be able to receive tax deductions through recruiting unemployed individuals that meet the standards listed in the related circular.

China’s Ministry of Finance and State Administration of Taxation issued the “Circular on Relative Taxation Policies to Support and Improve Reemployment” (Caishui [2010] No.84) on October 22. The circular clarifies that enterprises involved in commercial and trading activities, services that exclude advertising, realty brokerage, pawnbroker service, sauna, massage and oxygen bar services, and processing for labor employment purposes can have their business tax, urban maintenance and construction tax, education surcharge, and corporate income tax deducted in sequence through recruiting the unemployed.

According to the circular, the enterprises mentioned above can enjoy an annual RMB4,000 deduction from the aforementioned tax items every time they recruit one unemployed individual. The central government also allows local governments to set up their own deduction rate within the range of 20 percent above or below RMB4,000. However, the new policy does not approve the enterprises to carry the balance forward to the next year if the total amount of deduction does not meet the highest standard.

Individuals enterprises can hire to benefit from the favorable taxation policy have to hold an Unemployment Registration Certificate and meet at least one of the criteria listed below:

  • Laid-off workers from state-owned enterprises (SOEs)
  • Laid-off workers as a result of SOE bankruptcy
  • Laid-off workers from collective enterprises established by SOEs
  • Other types of urban residents that are unemployed for over one year and receive minimum standard subsidies

Companies need to go through application procedures between January 1, 2011 and December 31, 2013 to become qualified for the favorable taxation policy. The duration for such policy lasts three years beginning from the day the company completes the relative procedures and obtains approval.

The new circular will also try to tackle the increasing unemployment by encouraging entrepreneurship. In three years, starting from the day of application, unemployed individuals who start up and run a business will at most enjoy an RMB8,000 annual successive deduction from business tax, urban maintenance and construction tax, education surcharge and individual income tax.

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