Page 9 - The South China Business Journal
P. 9
July 2017
China completed its major VAT overhaul Other Tax Cuts plied to fewer products than the other
last year, essentially eliminating the busi- brackets.
ness tax (BT) that previously applied to a Individuals nationwide will enjoy expand-
number of industries. The comprehensive ed tax cuts for commercial health insur- Meanwhile, many of the other tax breaks
introduction of VAT reduced tax payments ance, with an upper limit on deductions of target small enterprises and tech startups.
by an estimated RMB 570 billion in 2016. RMB 2,400 (US$350) per person, leaving China’s comparatively high taxes and busi-
individuals extra money for consumption. ness fees can put a squeeze on small firms
Tax Cuts for the Small Enterprises and startups, especially as the pace of
and the Tech Firms In addition to the new tax cuts, the State growth slows. But supporting tech startups
Council is extending a package of cuts that is part of China’s strategy to foster a more
Tax cuts for low-profit enterprises have expired in 2016 for three more years. This innovative economy and move up the value
been extended to a wider range of compa- extended package includes tax breaks for chain.
nies. Enterprises with an annual income university graduates starting new busi-
of RMB 500,000 (US$72,625) or less are nesses, VAT exemptions for interest on in- That being said, many of the cuts also tar-
eligible for a preferential corporate in- come derived by financial institutions from get farmers, low-income businesses, and
come tax (CIT) rate of 20 percent applied microloans to farmers, and 50 percent tax other vulnerable elements of society. Ap-
to only half of their taxable income, up cuts to Urban and Township Land Use Tax peasing these potentially restive groups is
from the previous cap of RMB 300,000 on bulk commodity warehouse facilities important for Chinese President Xi Jinping
(US$43,575). owned by logistics enterprises. to ensure stability ahead of the fall’s 19th
Party Congress.
The standard CIT rate is 25 percent on all Implications for the Foreign Investors
taxable income. The measure is valid from However, other tax reforms hotly antici-
January 1, 2017 to December 31, 2019. The slew of tax cuts, coming on the heels pated by many Chinese citizens, namely
of a year of significant tax reform, is a posi- individual income tax and property tax
The measures also increase pre-tax deduc- tive sign for businesses and is expected the reform, seem unlikely to be carried out in
tions for SME tech firms from 50 percent boost the economy. Although China’s GDP 2017. Many Chinese citizens are eagerly
to 75 percent for R&D costs incurred from grew at a faster than projected 6.9 percent awaiting an individual income tax system
the development of new technologies, in the first quarter of 2017, analysts expect better suited to China’s new economy, and
products, and techniques. The expanded the pace to drop off later in the year as oth- are calling for curbs to unaffordable prop-
deductions are also valid from January 1, er stimulus measures run out of steam and erty prices.
2017 to December 31, 2019. officials try to rein in the booming property
market. In addition to the new tax cuts, China has
Furthermore, venture capital firms in cer- a number of pre-existing tax incentives
tain regions can benefit from taxable in- Given the essentially complete transition at both the national and regional levels.
come deductions on 70 percent of tech firm from business tax to VAT, overhauls to the For instance, high-tech companies across
investment at the seed stage, the initial set- VAT system are of note for all businesses China enjoy a preferential 15 percent CIT
up stage of a new business, as of January operating in China. In particular, the amal- rate, while Guangdong, for example, has its
1, 2017. Investments made up to two years gamation of the 13 percent bracket into the own high-tech incubation fund to attract
prior to this date can also apply for this 11 percent bracket is a boon for any busi- investment. Foreign investors are advised
benefit. The eligible regions are Beijing, ness involved in the former. For unaffected to also take into account incentives at the
Tianjin, Hebei, Shanghai, Guangdong, sectors, the move can be seen as a starting local level when establishing operations in
Anhui, Sichuan, Wuhan, Xi’an, Shenyang, point for simplifying the newly ‘completed’ China to maximize stimulus and minimize
and the Suzhou Industrial Park. VAT system, as the 13 percent bracket ap- tax exposure.
7
China completed its major VAT overhaul Other Tax Cuts plied to fewer products than the other
last year, essentially eliminating the busi- brackets.
ness tax (BT) that previously applied to a Individuals nationwide will enjoy expand-
number of industries. The comprehensive ed tax cuts for commercial health insur- Meanwhile, many of the other tax breaks
introduction of VAT reduced tax payments ance, with an upper limit on deductions of target small enterprises and tech startups.
by an estimated RMB 570 billion in 2016. RMB 2,400 (US$350) per person, leaving China’s comparatively high taxes and busi-
individuals extra money for consumption. ness fees can put a squeeze on small firms
Tax Cuts for the Small Enterprises and startups, especially as the pace of
and the Tech Firms In addition to the new tax cuts, the State growth slows. But supporting tech startups
Council is extending a package of cuts that is part of China’s strategy to foster a more
Tax cuts for low-profit enterprises have expired in 2016 for three more years. This innovative economy and move up the value
been extended to a wider range of compa- extended package includes tax breaks for chain.
nies. Enterprises with an annual income university graduates starting new busi-
of RMB 500,000 (US$72,625) or less are nesses, VAT exemptions for interest on in- That being said, many of the cuts also tar-
eligible for a preferential corporate in- come derived by financial institutions from get farmers, low-income businesses, and
come tax (CIT) rate of 20 percent applied microloans to farmers, and 50 percent tax other vulnerable elements of society. Ap-
to only half of their taxable income, up cuts to Urban and Township Land Use Tax peasing these potentially restive groups is
from the previous cap of RMB 300,000 on bulk commodity warehouse facilities important for Chinese President Xi Jinping
(US$43,575). owned by logistics enterprises. to ensure stability ahead of the fall’s 19th
Party Congress.
The standard CIT rate is 25 percent on all Implications for the Foreign Investors
taxable income. The measure is valid from However, other tax reforms hotly antici-
January 1, 2017 to December 31, 2019. The slew of tax cuts, coming on the heels pated by many Chinese citizens, namely
of a year of significant tax reform, is a posi- individual income tax and property tax
The measures also increase pre-tax deduc- tive sign for businesses and is expected the reform, seem unlikely to be carried out in
tions for SME tech firms from 50 percent boost the economy. Although China’s GDP 2017. Many Chinese citizens are eagerly
to 75 percent for R&D costs incurred from grew at a faster than projected 6.9 percent awaiting an individual income tax system
the development of new technologies, in the first quarter of 2017, analysts expect better suited to China’s new economy, and
products, and techniques. The expanded the pace to drop off later in the year as oth- are calling for curbs to unaffordable prop-
deductions are also valid from January 1, er stimulus measures run out of steam and erty prices.
2017 to December 31, 2019. officials try to rein in the booming property
market. In addition to the new tax cuts, China has
Furthermore, venture capital firms in cer- a number of pre-existing tax incentives
tain regions can benefit from taxable in- Given the essentially complete transition at both the national and regional levels.
come deductions on 70 percent of tech firm from business tax to VAT, overhauls to the For instance, high-tech companies across
investment at the seed stage, the initial set- VAT system are of note for all businesses China enjoy a preferential 15 percent CIT
up stage of a new business, as of January operating in China. In particular, the amal- rate, while Guangdong, for example, has its
1, 2017. Investments made up to two years gamation of the 13 percent bracket into the own high-tech incubation fund to attract
prior to this date can also apply for this 11 percent bracket is a boon for any busi- investment. Foreign investors are advised
benefit. The eligible regions are Beijing, ness involved in the former. For unaffected to also take into account incentives at the
Tianjin, Hebei, Shanghai, Guangdong, sectors, the move can be seen as a starting local level when establishing operations in
Anhui, Sichuan, Wuhan, Xi’an, Shenyang, point for simplifying the newly ‘completed’ China to maximize stimulus and minimize
and the Suzhou Industrial Park. VAT system, as the 13 percent bracket ap- tax exposure.
7
