State Council decides to extend some preferential tax policies

The Premier of the State Council Li Keqiang chaired an executive meeting on 7 April 2020 which decided to adopt a series of tax related measures to cope with the negative impact caused by the COVID-19 pandemic and to stabilise the domestic economic environment. The measures mainly include the following:

1. 

Expand the scope of cross-border e-commerce comprehensive pilot zones

46 new cross-border e-commerce comprehensive pilot zones (Pilot Zones) will be set up in addition to the 59 existing ones. Effective measures of facilitating the development of cross-border e-commence will be promoted. At the same time, supporting policies to exempt cross-border e-commerce retail exports from value-added tax (VAT) and consumption tax according to regulations, and levy of enterprise income tax (EIT) by way of verification in the Pilot Zones, etc. will be implemented. The government will study the feasibility of including those cities where Pilot Zones are located and which meet the relevant criteria in the cross-border e-commerce retail imports pilot program, and support enterprises to jointly build and share overseas warehouses. Please refer to the client alert -“New regulations on collection of enterprise income tax from retail export enterprises in cross-border e-commerce comprehensive pilot zones” issued by our firm on 4 December 2019 for details of the tax supporting policies in Pilot Zones.

2.

Support the processing trade enterprises to ease their difficulties

For the domestic sale of bonded materials or finished products in processing trade, interests on deferred tax payment shall be temporarily exempted until the end of 2020. At the same time, pilot program for processing trade enterprises may choose to pay tariffs either on imported materials or on finished products for domestic sales of the finished products will be extended to all integrated bonded zones.

3.

Extend preferential tax policies in relation to inclusive financial services for small or micro-sized enterprises, individual businesses and farmers until the end of 2023

Such preferential tax policies include:

(a) 

VAT on interest income from loans of RMB 1 million or less granted to small or micro-sized enterprises, individual businesses or farmers by financial institutions shall be exempted.

(b) 

Interest income from loans of RMB 100,000 or less granted to farmers, and the premium income from insurance provided to planting and breeding industries, shall be included in the taxable income amount of income tax at the rate of 90%. 

(c) 

The interest income of small loan companies from loans of RMB 100,000 or less granted to farmers shall be exempted from VAT, and 90% of such interest income shall be included in the taxable income for calculation of EIT. The loan loss reserve calculated and withdrawn at the rate of 1% of the year-end loan balance is allowed to be deducted from the taxable income of EIT. 

In addition, the executive meeting of the State Council held on 14 April 2020 also decided to extend the implementation period of the preferential EIT rate at 15% to enterprises in encouraged industries established in western China, which is originally due by 31 December 2020. Further, the threshold for enjoying the policy is lowered, with the proportion which the main business income of an encouraged industry bears to the total income of the enterprise within the tax year reduced from 70% to 60%.

It is expected that relevant ministries such as finance, tax and customs will issue more specific documents based on the decisions made in the executive meetings for further implementation of the above policies. Relevant enterprises or individuals should pay close attention to the development and communicate with the supervising tax or customs authorities in time so as to fully enjoy the preferential tax treatments.