By Gina Chen, Maarten Roos
With the current Covid-19 crisis, governments all over the world are implementing policies to support local businesses. In China too, companies can enjoy some relief relating to taxation (incl. tax deferments and increase of export tax rebates) and social insurance contributions, while state-owned landlords are offering rent-relief.
However, it is less well-known that many district governments already offer some companies in their districts the opportunity to apply for tax subsidies in the form of rebates. While these benefits are at the discretion of each local government and vary considerably, foreign investors should check every year what is available and not miss the opportunity to apply – especially in these difficult times!
Tax Subsidies in 2019
The overview below illustrates what some of Shanghai’s district governments currently offer in minimum subsidies to companies that have paid Value Added Tax (VAT) and Corporate Income Tax (CIT), though rebates generally increase as more taxes are paid. The rates below are approximate and represent the percentage of VAT or CIT that is rebated to the taxpayer. It is also important to note that most district governments will only consider applications if the total amount of subsidies to be rebated is more than CNY 10,000, so very small companies often do not qualify.
- In Changning District, companies that have paid less than CNY 15 million in taxes annually (including all taxes) can enjoy a VAT subsidy rate is 9.75%, while for CIT the rate is 6%.
- In Xuhui District, companies that have paid less than CNY 500,000 in taxes annually can enjoy a VAT subsidy rate of 9.75%, while the rate for CIT is 6%.
- Putuo District has a minimum threshold. A company can apply for a tax subsidy if it has paid at least CNY 600,000 in taxes annually. If the amount of taxes paid is above CNY 600,000 but less than CNY 2 million, the VAT subsidy rate is 11.38%, while the CIT rate is 7%.
- In Pudong District, the minimum amount of annual taxes paid for consideration of subsidies is CNY 500,000. For annual tax payments of between CNY 500,000 and CNY 1 million, the VAT subsidy rate is 9.75%, and the CIT rate is 6%.
Application Procedures for VAT and CIT Subsidies
Every district government has different policies, but application procedures vary as well and change frequently. In Pudong for example, the company should log in to the designated website in early April and complete the tax payment information for the previous year. The government will then review the information and confirm the applicant’s eligibility. A formal approval document follows within a few days, and the subsidy is paid into the company’s basic account after 4 months.
Other Applicable Subsidies
An employer can also apply for subsidies on Individual Income Tax (IIT) paid by its employees. Subsidies vary, but generally the annual IIT payment must be at least CNY 10 million for a subsidy to be considered.
Certain companies are currently encouraged with separate policies including regional headquarters of multinational corporations; newly-recognized R&D centers with foreign investment; and creative companies with international influence, can also enjoy other benefits, including the below:
- Rent allowances for senior management;
- One-off start-up subsidy;
- Office rent subsidy.
As policies vary considerably and change regularly, companies are recommended to check at the beginning of each year what subsidies are available, and complete applications timely so as not to miss the opportunity to get a rebate of some of its taxes paid. Where international companies outsource the tax filing work to an external agent or corporate service provider, then they should make sure that the service provider is familiar with the eligibility requirements and approval procedures.
R&P is a full-service law firm; we also support foreign clients and their Chinese subsidiaries on tax-relates issues in China. Many clients outsource their administrative and compliance functions to R&P’s Corporate Service Department, which provides a full range of services including custodian of stamps and licenses, treasury, payroll, and accounting + tax filing assistance. For more information, please contact Gina Chen (firstname.lastname@example.org) or Maarten Roos (email@example.com).