The State Taxation Administration (STA) released several announcements in the beginning of February which established preferential tax policies for facilitating the prevention and control of the outbreak of the novel coronavirus (COVID-19) and supporting enterprises to resume their business operations.
Certain preferential tax treatments are specifically offered to enterprises and individuals that are directly involved in the prevention and control of the outbreak of COVID-19. Others are applicable to a broader spectrum of tax payers, covering various taxes, which are summarised below:
Value-added tax (VAT)
Income obtained by taxpayers from providing public transportation services (Public Transportation Services), living services (Living Services), and services of express collection and delivery of daily necessities to residents (Collection and Delivery Services) shall be exempt from VAT and VAT surcharges (i.e., urban construction and maintenance tax, education surcharges and local education surcharges).
For the purpose of the above, “Public Transportation Services” refers to ferry, public passenger transportation, subway, urban light rail, taxi, long-distance passenger transportation, and regular bus services. “Living Services” refers to various services provided for the purpose of meeting the needs of urban and rural residents' daily lives, including cultural and sports services, educational and medical services, tourism and entertainment services, catering and accommodation services, residents' daily services and other living services. “Collection and Delivery Services” refers to the business activities of providing senders with services of collection, sorting, and delivery of correspondence and parcels within the promised time limit.
The eligible taxpayers are not required to complete any filing formalities in order to enjoy the tax benefits but shall retain the relevant supporting documents for record. Such tax treatment became effective from 1 January 2020 until further notice by the STA.
Enterprise income tax (EIT)
With effect from 1 January 2020, the maximum carry over period for losses for enterprises in difficulty-ridden industries that are severely affected by the epidemic in 2020 will be extended from five years to eight years for the purpose of calculation and payment of EIT.
Difficulty-ridden industries include transportation, catering, accommodation, and tourism (covering both travel agency and related services, and management of scenic areas). For the specific scope of these industries, please refer to the current effective Industrial Classification for National Economic Activities. In order to enjoy the tax benefits, the main business income of a relevant enterprise in any of these four industries in 2020 must account for more than 50% of its total income (excluding non-taxable income and investment income). An eligible enterprise shall submit a “Statement in respect of the Application for Extended Period for Carrying forward Losses” when it deals with the final settlement of its EIT for the year of 2020.
Individual income tax (IIT)
Benefits in kind such as medicines, medical supplies and protective supplies (excluding cash) provided by an employer to its employees for preventing COVID-19 will not be included in the employees’ wages and salaries and will therefore be exempt from IIT. Similar to the VAT treatment, such tax exemption is also effective from 1 January 2020 until further notice by the STA.
Further to the above, the STA also promulgated policies to encourage people to make donations in response to the outbreak of COVID-19. The value of (i) cash or materials donated by enterprises or individuals, through public welfare and social services organisations (公益性社会组织), the people's governments at or above the county level and their departments, or other state authorities; and (ii) materials directly donated by enterprises or individuals to hospitals undertaking the tasks of prevention and treatment of COVID-19 infections are allowed to be deducted in full in the calculation of their taxable income for the purpose of payment of EIT or IIT, as the case may be. In addition, entities and individual business owners that donate self-produced, commissioned or purchased goods through the same channels as aforementioned shall also be exempt from paying VAT, consumption tax and surcharges on those goods.