Month: Abril 2012
Clarification on the Implementation of the Enterprise Income Tax Preferential Policies for China's Western Region
The State Administration of Taxation (“SAT”) issued Notice on the Matters regarding Enterprise Income Tax under the Development Strategy for Western Region (hereinafter referred to as “Notice”) which provided certain important clarifications for the implementation of Enterprise Income Tax (“EIT”) preferential policies and set out the relevant applications and approval procedures. The Notice takes retrospective effect from January 1st 2011.
Main Points
1. Scope of Application
The Notice is applicable to the enterprises located in the Western Region. Furthermore, if an enterprise’s branch is located in the West Region but the enterprise’s head office itself is not located in the West Region, the Notice is applicable to the branch but is not applicable to the head office.
2. 15% Reduced EIT
Enterprises in the Western Region can apply for the 15% reduced EIT to the competent tax authorities provided that they fall within the Catalogue of Encouraged Industries in the Western Region (“the Catalogue for the Western Region”) and their aggregate revenue from these projects exceeds 70% of the total revenue.
3. The Catalogue for the Western Region
In fact, the catalogue for the Western Region has not yet been released by the relevant Chinese authorities so far. The Notice clarifies that enterprise may temporarily file the application for the 15% reduced EIT to the competent tax authorities provided that they fall within the encouraged industries under the following four "old" Catalogues:
· The Catalogue for the Guidance of Industrial Structure Adjustment (2005 Version);
· The Catalogue for the Guidance of Industrial Structure Adjustment (2011 Version);
· The Catalogue for the Guidance of Foreign Investment Industries (2007 Version); and
· The Catalogue of Competitive Industries in Central and Western Regions for Foreign Investment (2008 Version).
4. Both Incentives
Enterprises in the Western Region may enjoy both the 15% reduced EIT under the Notice and the half reduction of EIT during tax holiday period under EIT law. Therefore, enterprises may apply for the reduced CIT rate of 7.5% in this case.
Conclusion
The clarification in Notice once again indicates the Chinese government’s determination to boost the economy in the Western Region during the State’s 12th Five-year Plan.
Taxpayers in the Western Region are encouraged to observe and study the clarification provided in the Notice to plan and structure their investment. In addition, they should also stay tuned on the future policy developments in the region, particularly the release of the Catalogue for the Western Region.
Tax Transformation from Business Tax to Value-Added Tax in China
The State Administration of Taxation has issued the Provisional Measures of Applying the Exempt, Credit and Refund Method to Zero-rated Value-added Tax Services in Their Transformation from Business Tax to Value-added Tax under the Pilot Program (the “Provisional Measures”) on April 5th, 2012, which has retrospectively become into effective since January 1st, 2012.
The main contents of the Provisional Measures are as follows:
1. The exempt, credit and refund method (the “ECR”) means when the zero-rated VAT services is provided, the Services Provider will be exempted from VAT, the relevant input VAT will credit the payable VAT, and the rest of the input VAT will be refunded.
2. In the pilot area, the legal entity and individual who provide the zero-rated value-added tax (the “VAT”) services and who are deemed to be general taxpayers (the “Services Provider”), are applied the zero-rated VAT and the exempt, credit and refund method, but are not allowed to issue the exclusive VAT invoice under the pilot program.
3. Scope of the Zero-rated VAT Services
a. International Transportation Service, including:
-- Transportation of travelers or goods from inside to outside China;
-- Transportation of travelers or goods from outside to inside China;
-- Transportation of travelers or goods outside China.
However, the transportation of travelers or goods from inside China to the special areas and places supervised by China customs, the transportation of travelers or goods from the special areas and places supervised by China customs to other areas and places inside China, and the transportation of travelers or goods in the special areas and places supervised by China customs are excluded from the scope of the zero-rated VAT service.
b. Provision of the Research and Development Service or Design Service to an abroad entity
The provision of the research and development service or design service to the special areas and places supervised by China customs is excluded from the scope of the zero-rated VAT service.
4. Before the Service Provider apply and file for the ECR of the zero-rated VAT services, it should apply for the identification of the export refund or exemption in the competent tax authority.
The Provisional Measures has been issued in order to interact and ensure that the pilot program of the transformation from business tax to VAT can be successfully preceded. The tax transformation from business tax to VAT now is only piloted in Shanghai and we believe it will be extended to more cities in the near future.