Circular Number

Issuance Date

Effective Date

Topic

What is new?

Caishui [2018] No. 64, jointly issued by the Ministry of Finance (“MoF”), the State Administration of Taxation (“SAT”) and the Ministry of Science and Technology (“MST”)

2018-06-25

2018-01-01

Super-deduction of expenses of Research and Development (“R&D”) activities outsourced abroad

According to the Circular, 80% of the actual costs incurred by a company which engages a foreign organization to carry out R&D activities can be subject to the super-deduction for Corporate Income Tax (“CIT”) purpose, provided that such costs do not exceed two thirds of the total qualified R&D expenses incurred domestically. Charges for such R&D activities must be determined at arm's length. If the foreign organization is a related party of the company assigning the R&D activities, the foreign organization shall provide detailed breakdown of the R&D expenses to the company. The super-deduction rules do not apply to a company assigning the R&D activities to a foreign individual. Relevant technology development contracts should be properly signed and recorded with the science and technology bureaus. Relevant documents should be well kept for future reference.

SAT Announcement [2018] No. 37

2018-07-01

2017-01-01

Preferential tax rates applicable to certain interest incomes under the Sino-Chilean Double Taxation Treaty (“DTT”) due to Most-Favored-Nation (“MFN”) treatment

As agreed in Item 3 of Article 10 of the protocol of Sino-Chilean DTT, if the government of Chile signs a DTT in future with a third country where a lower tax rate than the one under Item 2 of Article 11 of the Sino-Chilean DTT applies, the lower tax rate shall automatically apply to the Sino-Chilean DTT for cases with the same condition. In April 2018, the Internal Revenue Service of Chile informed China SAT that Chile has signed DTTs respectively with Japan and Italy, where lower tax rates are applicable to certain interest incomes. As a result, such preferential tax rates shall automatically be applicable to the Sino-Chilean DTT:

1)

A maximum preferential tax rate of 4% shall apply to the following situations:

 

 

 

 

The beneficial owner is a company that derives income mainly through active and recurring loans or financial services for unrelated parties and the company is not a related party of the payer of the interest.

 

 

 

 

The beneficial owner is a seller of mechanical equipment and the interest income is derived from sales of mechanical equipment on credit.

 

 

 

2)

A maximum preferential tax rate of 5% shall apply to the following situation:

 

 

 

 

Interest incomes are derived mainly from frequently traded bonds or securities at recognized stock exchanges.

 

 

3)

The maximum tax rate of 10% shall apply to other situations. Especially if the interest incomes constitute part of a “back-to-back loan” arrangement or a similar arrangement, this maximum rate of 10% shall apply.

Caishui [2018] No. 70

2018-06-27

2018-06-27

Refund of uncredited input VAT for certain industries

As a means to boost economy, any input VAT not yet credited will be refunded to taxpayers of certain industries during 2018. Qualified taxpayers eligible for the refund shall be those with tax credit level A or B in the following industries:

1)

The 18 industries listed in the List of VAT Refundable Industries for 2018, which covers advanced manufacturing (e.g. manufacturing of special equipment), modern services (e.g. research and development), etc. Priority will be given to 10 key fields including advanced IT, computer numerical control and robot technology, aeronautical and space technology, marine engineering equipment and advanced shipping vessel, advanced rail transit equipment, energy saving and alternative fuel vehicle, electric power equipment, agricultural machinery, new material, biological medicine and advanced medical equipment. Priority will also be given to High New Technology Enterprises (“HNTEs”), Advanced Technology Service Enterprises (“ATSEs”) and Medium and Small-scale Scientific and Technological Enterprises (“MSSTEs”);

 

 

 

2)

Electric power entities (including production and transfer of electric power) with valid permits.

 

 

Amount refundable shall be calculated based on the amount of input VAT not yet credited by the end of the last taxable period times the refundable rate, with an upper limit of total amount of input VAT not yet credited by the end of 2017. The refundable rate shall be the percentage of total credited VAT amount on the three types of VAT credit vouchers (i.e. special VAT invoices, customs import VAT payment certificates and VAT withholding payment certificates) during a certain period of time accounting for the taxpayer’s total amount of input VAT credited during that period. The applicable “certain period of time” varies, depending on the time when the taxpayer made tax registration.

Caishui [2018] No. 76

2018-07-11

2018-01-01

Corporate Income Tax (“CIT”) loss carry-forward period extended for HNTEs and MSSTEs

Starting from 1 January 2018, CIT loss carry-forward period can be extended from the current 5 years to 10 years for HNTEs and MSSTEs.

Caishui [2018] No. 77

2018-07-11

2018-01-01

Expansion of preferential CIT policy for Small-scale & Low-profit Enterprises (“SSLPEs”)  

During the period from 1 January 2018 to 31 December 2020, the upper limit of annual CIT taxable income of qualified SSLPEs shall be increased from the current RMB 0.5 million to RMB 1 million. For qualified SSLPEs with annual taxable income lower than RMB 1 million, only 50% of total taxable income shall be taxed at a reduced CIT rate of 20%. The preferential CIT policy applies to enterprises that are taxed either on actual profit basis or on deemed profit basis. No preliminary approval is needed for enjoying the underlying CIT policy. Instead, the enterprises shall make self-assessment, simply provide relevant information in the CIT declaration returns and keep relevant documents for the tax authorities’ follow-up inspections.