Circular Number Issuance Date Effective Date Topic What is new? Caishui  No. 79 2017-11- 02 2017-01- 01 Preferential Corporate Income Tax (“CIT”) treatment for qualified service companies with advanced technologies From 1st January 2017, the following preferential tax policies shall apply nationwide: A preferential CIT rate of 15% shall apply to qualified the service companies with advanced technologies; For qualified service companies with advanced technologies, staff education costs can be deducted for CIT purpose with an upper limit amounting to 8% of total salary costs of that year. Any exceeding amount can be deducted in the following tax years. All the following requirements shall be met to enjoy the preferential tax policies: The applicant should be an enterprise with legal person status registered within the territory of mainland China; The applicant shall be engaged in one or several types of services which are listed in a the Scope for Services with Advanced Technologies (Trial Implementation) and shall have strong ability in applying advanced technologies and conducting research and development activities; Over 50% of the total employees of the applicant should hold college certificate or above; Revenue derived from provision of services listed in the Scope for Services with Advanced Technologies (Trial Implementation) should take up more than 50% of the applicant’s total annual revenue; and Revenue derived from provision of offshore outsourced services shall take up no less than 35% of the applicant’s total annual revenue. SAT Announcement  No.38 2017-10- 30 2017-06- 17 Effectiveness of the new SinoRomanian Double Taxation Treaty The Announcement stipulates that the new SinoRomanian Double Taxation Treaty (“DTT”) signed on 4 July 2016 entered into force from 17 June 2017 and is applicable to the incomes received on and after 1 January 2018. The key points that are worth attention of the new DTT mainly include the following: For assessment of a permanent establishment (“PE”) for construction services, the time threshold is “lasting for more than 12 months”. For assessment of a PE for non-construction services, the time threshold of onsite services is “more than 183 days during any consecutive 12 months period”. If a person represents exclusively or almost exclusively one or several enterprises “closely related” to the person, this person shall not be regarded as an independent agent of any enterprise above. “Closely related” refers to the situation where the person has controlling relation with the enterprise or both the person and the enterprise are commonly controlled by other persons or enterprises. The dividend withholding tax (“WHT”) rate shall not exceed 3% in the event that the shareholder is the beneficial owner of the dividend. WHT exemption is granted to the cases where the recipient has governmental background. The interest WHT rate shall not exceed 3% in the event that the shareholder is the beneficial owner of the interest incomes. WHT exemption is granted to the cases where the interest derives from credit sales, loans approved by the financial institutions of the other state or loans granted by interest recipient with governmental background. The royalty WHT rate shall not exceed 3% if the recipient in the other country is the beneficial owner of the royalty incomes. The contracting state has taxation rights on the capital gain if more than 50% of the value of the property for transfer comes from immovable properties located in that contracting state. The clause of “main purpose test” has been added to the articles relating to dividends, interests, royalties and other incomes to prevent the abuse of treaty benefit. SAT Announcement  No. 40 2017-11- 08 2017-01- 01 Superdeduction of research and development (“R&D”) expenses The Announcement is a follow-up regulation based on the existing super-deduction rules of R&D expenses for CIT purpose. The Announcement provides detailed guidelines on how to recognize certain R&D expenses for super-deduction purpose, which mainly focus on the following aspects: 1. Staff costs According to the previously released Announcement  No. 34, different CIT deduction rules apply to the following two scenarios of labor dispatch: i) fees directly paid to labor dispatch companies according to contract arrangements shall be recognized as service fee for CIT deduction purpose; ii) salaries directly paid to the dispatchers according to contract arrangements shall be recognized as salaries for CIT deduction purpose. Historically there are different understandings and practices on whether fees under situation i) can be recognized as R&D costs and subject to super-deduction rules. Considering that the two scenarios are actually identical in nature, the Announcement clarifies that in situation where fees are firstly paid to labor dispatch companies, which then pay salaries to the dispatchers engaged in R&D activities, such fee can also be subject to super-deduction. Besides, the Announcement also clarifies that qualified stock-based incentive compensation to R&D-related staff can be super-deducted for CIT purpose. 2. Direct costs According to SAT Announcement  No. 97 (“Announcement 97”), if R&D expenses lead to (or partially lead to) products which are later sold externally, material costs covered by the R&D expenses cannot be super-deducted for CIT purpose. Practically however, it is usually the case that material costs are incurred in the previous fiscal year, while the products are sold in the next fiscal year so that a retroactive adjustment will be required. To simplify the procedures and reduce the taxpayer’s administrative burden, the Announcement stipulates that under such circumstance, the company can simply deduct the amount equal to the material cost booked in the previous year directly from the R&D cost of the current year during which the products are sold. Any excessive amount can be deducted in the following fiscal years. 3. Depreciation According to Announcement 97, R&D-related depreciation which can be super-deducted shall be the smaller amount of depreciation calculated based on accounting policy and tax requirement. However, considering the complexity of this method, the Announcement indicates that depreciation deducted for CIT purpose is the amount subject to super-deduction. 4. Amortization of intangible assets Similar to depreciation rules, amortization deducted for CIT purpose is the amount subject to super-deduction. 5. Other costs All costs related to new product design, new process design, test of newly invented medicine, prospection and development test, etc. shall be qualified for super-deduction. Other expenses including staff welfare costs, supplementary pension costs, supplementary health insurance, etc. shall be qualified for super-deduction. The Announcement also provides guidance on treatments of government subsidies, irregular incomes, timing of capitalization of R&D costs, costs relevant to unsuccessful R&D activities, outsourced R&D activities, etc.