Circular Number Issuance Date Effective Date Topic What is new? Caishui  No. 13 2018-02- 07 2018-01- 01 Recognition of Corporate Income Tax (“CIT”)- exempted non-profit organizations (“NPOs”) This Circular has repealed the existing circular Caishui  No. 13 to re-interpret the concept of “qualified NPOs”, which can be exempted from CIT under the PRC CIT Law. Below is a brief introduction of the key changes brought by the Circular: 1. Conditions for “qualified NPOs” # Old interpretation New interpretation under the Circular 1 Should be a public institution, social group, foundation, private noncorporate institution, religious place, or other organization approved by the Ministry of Finance (“MoF”) and the State Administration of Taxation (“SAT”), which is legally established and registered under applicable regulations. Should be a public institution, social group, foundation, social service institution, religious place, religious school, or other non-profit organization approved by the MoF and the SAT, which is legally established and registered under applicable regulations. 2 Should be engaged in public welfare and non-profit activities. No changes. 3 After deduction of reasonable expenditures related to its own operation, incomes of the organization should be fully used for public welfare and non-profit activities as are registered or stipulated in its Article of Association. No changes. 4 Assets, including any interests generated by the assets, shall not be used for profit distribution. Profit No changes. distribution does not include reasonable salary payments. 5 According to the registered information or the Article of Association, any remaining assets of the organization after being deregistered shall be used for the purpose of public welfare and non-profit activities or be transferred to other organizations of similar nature and purpose. Public announcement should be made for such transfer. Not substantial changes. 6 Contributors shall not possess rights over the assets of the organization. “Contributors” refers to legal persons, natural persons, and other nongovernmental organizations. No changes. 7 Salaries and welfare costs should be within a reasonable range. Any hidden distribution of assets should be avoided. Average salary of the employees shall not exceed twice the average salary of last year of the region where tax registration is made. Welfare costs shall meet applicable national standards. Salaries and welfare costs should be within a reasonable range. Any hidden distribution of assets should be avoided. Average salary of the employees shall not exceed twice the average salary of similar organizations engaged in the same industry of the region (citylevel or above) where tax registration is made. Welfare costs shall meet applicable national standards. 8 For public institutions, social groups, foundations, and private noncorporate institutions, assessment result of the year(s) prior to the application should be “Passed”, if the organization is not newly established. This condition is deleted. 9 Taxable and nontaxable incomes, as well as the corresponding costs, expenses and losses have been separately recorded. No changes. 2. Key changes of documentation for application for CIT-exempted NPO status: • A report illustrating the salaries and welfare costs of last year is required under the Circular. The report should include payroll schedule, average salary of all employees, the percentage of welfare costs against total expenditures, salary information of key employees. • Copy of tax registration certificate is no longer required under the Circular. • Supporting documents should be provided to prove that the organization’s activities / development of last year are in line with the applicable regulations and statutory policies. 3. Period of validity and deadline of application for renewal of the qualification Old regulations New regulations under the Circular Period of validity of the qualification 5 years 5 years Deadline of application for renewal of the qualification The organization should apply for renewal The organization should apply for renewal within 3 months before the qualification expires. within 6 months after the qualification expires. 4. Under the Circular, qualification of NPO shall be cancelled under any of the following situations: • the organization is found to be engaged in activities that are not in line with applicable regulations or statutory policies; • the organization provides fake information for application; • the tax credit level of the organization is C- or D-level; • assets are transferred, hidden or distributed via related party transactions, non-related party transactions or services or any other disguised forms; • the organization is blacklisted for significant dishonest / criminal activities; or • the organization is engaged in illegal political activities. Caishui  No. 5 2018-02- 11 2017-01- 01 CIT deduction of donation expenditures for public welfare purpose According to the PRC CIT Law, public welfare donation costs can be deducted from the company’s taxable incomes for CIT purpose, but the deduction should be subject to an upper limit equal to 12% of the total profit of the year. The Circular further clarifies that any public welfare donation costs exceeding the 12% threshold above can be carried forward to the following 3 years for CIT deduction. In the event that any historical public welfare donation expenditure is brought forward from prior years, the historical expenditures should be deducted for CIT purpose first and then be followed with the deduction of donation expenditures incurred during the current year.