To restart its economy after a prolonged shutdown due to COVID-19 outbreaks, Shanghai authorities have proposed several new support measures in eight categories in their latest Action Plan, released May 29, 2022. These impact tax liabilities, support for operating costs, access to subsidies, and eligibility for exemptions, among other things. Enterprises don’t have to seek approval for the resumption of work and production from June 1, 2022 – they can make this decision based on the epidemic situation of the area where they are located, thereby avoiding any burdensome application procedures.
Update: On June 10, 2022, the Shanghai Municipal Tax Service released the Guidelines on the Implementation of Tax Policies, as a supporting document to the Action Plan of Shanghai for Accelerating Economic Recovery and Revitalization. Divided into seven parts, with each part containing Content of Policy, Policy Documents, Ways of Application, Paths of Handing, and Policy Questions and Answers for taxpayer’s easy access, the document clarified that the tax declaration periods would be extended, property tax and urban land use tax would be waived or reduced for enterprises in difficulty, refunds of excess input VAT credits would be expanded, VAT would be exempted for express delivery services, export tax rebates would be supported for foreign trade, taxes on the purchase of selected passenger vehicles would be reduced on a time-limited basis, and preferential tax policy would be implemented to encourage college graduates to get a job or start a business.
After a nearly two-month lockdown, Shanghai is ramping up new supportive measures to reboot its economy. On May 29, 2022, the Shanghai Municipal Government released its Action Plan of Shanghai for Accelerating Economic Recovery and Revitalization (Action Plan), which provides 50 measures in eight areas.
According to the Action Plan, Shanghai will abolish the approval system for enterprises to resume work and production starting from June 1, 2022. A series of policies to stabilize foreign investment, promote consumption, and increase investment have been proposed.
In this article, we walk you through key points in the Action Plan and discuss the most relevant measures for businesses.
The payment of social insurance premiums will be delayed in stages for companies in the catering, retail, tourism, aviation, and road, waterway, and rail transport industries from April onward. The deferments will be delayed as follows:
In addition, employers that have been impacted by the COVID-19 containment measures can apply for deferred payment of housing provident funds. The deferral period is from April to December 2022, after which the payments must be made. During this period, employees who have already made payments and deposits can withdraw payments and apply for housing provident fund loans as normal and will not be impacted by the deferral of payments.
People who have made deposits and have been impacted by the pandemic and cannot repay the housing provident loan as normal will not be subject to overdue fees, nor will this be included in their credit record. In addition, the withdrawal limit for employees who apply to withdraw housing provident funds to pay rent has been raised from RMB 2,500 (US$375) to RMB 3,000 (US$450) per household (including single-person households).
Finally, the deadline for taxpayers who file monthly and quarterly tax returns has been pushed back to June 30. The deadline for paying 2021 corporate income tax (CIT) has also been extended to June 30. Taxpayers who still have difficulties settling the tax liabilities at this time can either apply for an extension of filing declaration or a deferral of tax payment for up to three months to the tax authorities.
Micro and small-sized enterprises (MSEs) and sole proprietorships that engage in production and business activities and rent state-owned property have previously been exempted from rent payments for a period of up to six months, without requiring them to provide proof of having been impacted by the pandemic.
Subletters do not have the right to the rent exemption and the property owners are required to ensure that the rent exemption is extended to the primary lessee only.
Non-state-owned property owners will also be encouraged to reduce rent for MSEs and sole proprietorships that lease their property for business. Certain eligible companies that reduce rent for these businesses can get a subsidy of 30 percent of the total rent waived, capped at RMB 3 million (US$450,220), although the final amount will be controlled in accordance with local government budgets.
Non-resident users of utilities are eligible for up to 10 percent subsidies for water (including sewage treatment), electricity, and natural gas (except for gas used by gas-fired power generation companies). In addition, non-resident users will not have these utilities cut off if they fail to pay the fees in time during the COVID-19 containment period and will not be subject to any penalties. In addition, non-resident users will be exempted from over-quota and progressive water charges in 2022.
Several other utility and fee reduction measures will also be imposed, including:
The measures propose further expanding the VAT rebates extended to companies in six key industries to more industries.
Currently, all companies in the following six industries, as well as MSEs, can apply for VAT rebates:
The measures also call for issuing the VAT rebates for medium-sized and large enterprises in advance and issuing VAT rebates for all companies on the basis of voluntary participation by June 30, 2022.
See our full article on the VAT rebates for companies in Shanghai for more details.
Moreover, companies that struggle to pay real estate and urban land use tax can apply for the reduction or waiver of real estate tax on property and land for their own use and urban land use tax. However, companies engaging in industries whose development is restricted or discouraged by the state are not eligible for these tax waivers or reductions.
Companies in industries hard-hit by the pandemic, such as catering, retail, tourism, transport, hospitality, and exhibitions are eligible for certain subsidies if they do not lay off staff or lay off few staff members. These companies are eligible for RMB 600 (US$90) in subsidies for each staff member, capped at RMB 3 million (US$450,220) per company. The full amount is calculated based on the number of urban employees that the company paid social insurance premiums for in the month prior to the application.
Companies can also be eligible for a one-time subsidy of RMB 2,000 (US$300) for each person they employ that has been unemployed for over three months or are 2022 graduates from universities in Shanghai. To be eligible, the companies must sign a labor contract of at least one year with the employee and pay social insurance premiums as required by law.
Certain eligible companies that employ 2022 graduates from universities in Shanghai can receive RMB 7,800 (US$1,170) in tax reductions for each fresh graduate they employ per year within three years. The measures did not provide details on eligibility criteria.
Companies and social organizations that have been impacted by the pandemic are also eligible for subsidies for providing online vocational training related to the business to their staff members and employees. The employer can receive a subsidy of RMB 600 (US$90) for each employee receiving the training up to three times in 2022. Employees who obtain vocational qualification certificates for skilled personnel and vocational skill grade certificates can also receive subsidies. 2022 graduates can also return to their original schools to participate in skill level recognition and receive vocational skills improvement subsidies before the end of the year.
At the press conference where the Action Plan was released on May 29, Wu Qing, executive vice mayor of Shanghai, said that Shanghai will dynamically revise the Guidelines for Epidemic Prevention and Control for Industrial Enterprises in Shanghai and remove unreasonable restrictions on the resumption of work and production.
Starting from June 1, 2022, enterprises will no longer be required to apply for approval for resuming work and production. That is to say, enterprises can arrange work and resumption production based on the epidemic situation of the area where they are located, without going through the lengthy and burdensome application process.
The Action Plan also proposed the below measures to support work and production resumption:
The Action Plan promised to amend the work and production guidelines for different industries in a classified and timely manner. The unreasonable restrictions on resumption of production, work, and market shall be removed.
Different districts will work in a coordinated manner to help workers returning to work, ensure logistics support, and coordinate the resumption of upstream and downstream productions.
The scope of subsidies for enterprises’ epidemic prevention and control expenses will be expanded. In 2022, on the basis of the existing subsidies for retail, catering, airports and ports, and cold-chain enterprises, Shanghai will provide targeted subsidies for property services, postal and express delivery, accommodation, cultural tourism, and other industries. All districts are encouraged to subsidize the epidemic prevention and control expenditures of enterprises that have resumed work and production according to their actual scale of operation.
According to the Action Plan, the resumption of production and work of different industries shall be arranged as below:
The Action Plan promised Shanghai will move faster to promote the unified and mutually recognized passes across the country, improve the efficiency of trans-provincial transport transit stations, promote contactless logistics, and improve the efficiency of freight transport.
The delivery methods and quarantine procedures at ports and airports shall be optimized to ensure the orderly operation of industrial chains, supply chains, and shipping and logistics.
Shanghai will accelerate the implementation of the support policies issued by the state to logistic companies. In the period from May 1, 2022 to the end of the year, VAT will be exempted for eligible express delivery service, and funds from reloans will be used to support financing for the transport, logistics and storage industries.
Foreign investment and foreign trade were emphasized in the Action Plan. The Shanghai government promised to provide specialized service to help foreign invested enterprises (FIEs) and enterprises engaging in foreign trade resume work and production and get through difficulties.
The Action Plan said Shanghai shall establish a service mechanism for the resumption of work and production in key FIEs. Specialized personnel shall follow up with relevant FIEs to solve issues that FIEs encounter regarding resumption of work and production, logistics, and COVID-19 control and prevention.
Besides, the Shanghai government will take measures to ensure the smooth promotion of key foreign invested projects. Multinational companies are encouraged to set up regional headquarters and R&D centers in Shanghai. The application of special funds for encouraging the development of regional headquarters of multinational corporations in 2022 in Shanghai will be advanced. The Shanghai government will strive to complete the allocation of the funds by the end of September.
Moreover, the Action Plan said Shanghai will establish a normalized inquiry-and-solution mechanism to listen to the opinions and suggestions of FIEs and help FIEs solve practical problems.
In addition, Shanghai government will facilitate the invitation letter and entry and exit procedures for foreign employees and their families of FIEs, global executives and professional and technical personnel carrying out important business activities in Shanghai, as well as important overseas customers of foreign trade enterprises.
The Action Plan said Shanghai will speed up the implementation of the foreign trade support policies introduced by the state. For example, enterprises engaging in processing trade shall be allowed to deduct the input VAT that is overly transferred out. Where an enterprise fails to collect foreign exchange for its export business declared for tax refund and obtains export credit insurance claims, the export credit insurance claims shall be regarded as foreign exchange received, and export tax refund shall be processed accordingly.
Shanghai will also strengthen policy and financial support for foreign trade enterprises. Among others, the export credit insurance will be expanded to cover more micro, small and medium-sized enterprises (MSMEs). The premiums of the export credit insurance can be paid in deferment and the claim settlement will be accelerated. For MSMEs with special and new technologies, a phased reduction of no less than 10 percent of the existing export credit insurance premium rate will be granted. Shanghai will also seek to actively use policy-based lending with preferential interest rates to reduce the financing costs of foreign trade enterprises.
Customs clearance facilitation measures will be provided to help foreign trade enterprises fulfil their orders. Foreign trade enterprises are encouraged to handle customs clearance online, with consignors and consignees being exempted from on-site inspection. Green custom clearance channels will be established for key enterprises.
Council for the Promotion of International Trade Shanghai (Shanghai CPIT) will issue proof of force majeure related to COVID-19 to eligible and needed enterprises affected by the epidemic for free.
Spurring consumption will be key for economic recovery in the aftermath of the current wave of COVID-19. The government has previously unveiled a host of measures to increase spending, which range from short term stimulus in the form of coupons and subsidies to long-term development of shopping infrastructure.
Many of the measures proposed in the Action Plan echo those previously raised in other policy documents, with some notable concrete actions for boosting consumption in some of the city’s key industries, such as passenger vehicles.
To boost car sales in Shanghai, the action plan announced the following measures:
In addition to passenger cars, the Action Plan seeks to encourage people to replace old appliances or building materials with new ones through a “trade-in” plan. This plan will include providing subsidies to buy green smart home appliances, green building materials, and energy-saving products. Large malls and e-commerce platforms will also be encouraged to implement trade-in programs and increase consumption of large appliances and electronics through discounts, subsidies, and product promotions.
The Action Plan calls for the use of “special funds” to provide support for development of the film industry, cultural and creative industries, tourism, and sports. In addition, the plan proposes for increasing support for performance venues, cinemas, physical bookstores, fitness venues, and other onsite venues through free funding, loan interest discounts, and other financial means.
Qualified travel agencies will now also be able to get a temporary 100 percent refund of the “travel quality deposit”. The travel quality deposit is a fee that travel agencies must pay to the China National Tourism Administration (CNTA) to provide government services and protection for tourists. This is an increase from the previous refund ratio of 80 percent announced in February of this year.
In terms of boosting investment, Shanghai plans to complete the reconstruction of old areas in the central urban area and launch more than eight reconstruction projects of urban villages within the year. Besides, corporate bond filings and issuance will be supported, and the new infrastructure projects will be included in the scope of special-purpose bonds (SPB) issued by local governments.
Shanghai will vigorously promote the resumption of construction and production of projects under construction. The construction of key infrastructure projects such as major railway corridors, rail transport networks, aviation hubs, ports, energy, inland waterways, water conservancy, and underground utility tunnels will be prioritized. Supportive measures will also be given to major industrial projects such as integrated circuits and new-energy vehicles.
Shanghai will also promote the healthy development of investment in real estate development, establish a green channel for the preliminary approval of real estate projects, and promptly launch the listing and supply of a new batch of new commercial housing projects on the market. The whole process including early planning, land acquisition, construction, and sales will be further shortened. And the urban infrastructure fee for newly started residential projects can be deferred for three months. This is considered a positive signal for the struggling real estate sector, which has been caught by China’s enhanced regulation on the sector since last year.
The Action Plan also supported local governments to apply for SPB for financing new infrastructures and encouraged more eligible existing infrastructure projects to issue REITs.
In addition to the above measures, the Action Plan also promised to increase fiscal support for maintaining steady growth. Financial institutions are encouraged to provide loans to MSMEs, individual businesses, as well as truck drivers. and housing and consumer loans for individuals affected by the epidemic and eligible individuals. Qualified asset management institutions are encouraged to participate in the qualified Foreign Limited Partner (QFLP) and Qualified Domestic Limited Partner (QDLP) trials and set up global or Asia-Pacific investment management centers in Shanghai to facilitate their cross-border two-way investment.
Moreover, the land supply and business environment in Shanghai will be improved further to ramp up the economy affected by the lockdowns.
(The article was first published on May 30, 2022 and was last updated on June 13, 2022.)
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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