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China Updates – August 2023

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Shenzhen Ramps Up Efforts to Enhance Appeal to Investors

China’s national city of innovation is poised to be at the forefront of spearheading the nation’s ambitious efforts to revitalise its economy.

Shenzhen has released three documents comprising 55 measures that focus on optimising the conditions for foreign investment. Among these measures are aligning with international trade rules and making the legal framework more investment friendly.

The document said that Shenzhen would comprehensively upgrade its service sectors and strengthen its manufacturing clusters to integrate them further into the global supply chain.

Often dubbed China’s Silicon Valley, Shenzhen intends to explore the relevance and application of international trade regulations and legal frameworks in a bid to optimise the investment environment and spur further foreign investment.

By drawing upon international trade norms, Shenzhen demonstrates its commitment to upholding transparency, stability, and predictability in its business environment, which facilitate global commerce and participation in global supply chains. All these elements are crucial to attracting foreign investment.

According to the document, the main objective is to create a favourable business environment for foreign enterprises, especially for those operating in strategic industries, such as advanced manufacturing. Additionally, the government aims to facilitate the establishment of research institutions funded by foreign entities.

The national hotbed of innovation also seeks to cooperate more closely with Hong Kong and Macau in areas such as the provision of legal, consulting, and audit services as well as other professional services.

China Introduces Further Measures to Facilitate Handling of Tax Matters

On 6 August, China’s State Taxation Administration released the Circular on the Continued Implementation and Optimisation of Measures of the “Spring Breeze Initiative for Tax-handling Facilitation to Promote Private-sector Growth and High-Quality Development” (“Circular”). The Circular contains 28 measures encompassing five aspects.

The latest measures form the fifth batch of a series of similar measures that were implemented in the first half of this year. In line with the national policy of promoting high-quality development, the purpose of these measures is to shore up the private sector, promote sustained economic growth, and improve service provision.

The range of measures detailed in the Circular include:

  • Publishing a list of tax incentives and relevant guidelines to support the development of small and micro-enterprises as well as individually owned businesses;
  • Refining the mechanisms to facilitate the retroactive enjoyment of tax incentives;
  • Improving accessibility to policies and supporting documents, including the “Enterprise Financial Accounting System”;
  • Optimising the process of cross-provincial relocation of small and medium-sized enterprises (“SMEs”);
  • Promoting the use of digital e-invoices;
  • Reducing transaction costs for SMEs;
  • Further facilitating the sharing of credit information between banks and taxpayers, and on the premise of safeguarding data security and maintaining the legitimate rights and interests of taxpayers.
China Steps Up Support for Micro, Small, and Individually Owned Businesses

On 2 August, China’s Ministry of Finance and State Taxation Administration jointly issued the Announcement on Tax Policies Related to Financing Support for Small and Micro Businesses.

To widen small, micro, and individually owned businesses’ access to funds, financial institutions shall be exempt from VAT on the interest income derived from the issuance of small loans to businesses with a bank credit of less than RMB 1 million (including the loan principal). In addition, the stamp duty imposed on loan contracts between financial institutions and small and micro businesses shall be waived.

On the same day, the Announcement on Tax Policies to Further Support the Growth of Small, Micro, and Individually Owned Businesses (“Announcement”) was separately released by the two authorities. This forms China’s wider efforts to bolster the growth of the private sector.

According to the Announcement, individually owned businesses can have their individual income tax slashed by half on the portion of their annual taxable income not exceeding RMB 2 million. Additionally, small, micro, and individually owned businesses can enjoy a 50% reduction on the following taxes and levies:

  • Resource tax (excluding tax on water usage)
  • Urban maintenance and construction tax
  • Property tax
  • Urban land use tax
  • Stamp duty (excluding stamp duty on securities transactions)
  • Cultivated land occupation tax
  • Education-related surcharges

Further, small and low-profit enterprises can benefit from a lower corporate income tax rate of 20 per cent. The standard rate is 25 per cent. To be eligible:

  • Your annual taxable income must not exceed RMB 3 million;
  • You must have no more than 300 employees; and
  • Your total asset value must not be over RMB 50 million.

All the above policies are continuations or enhancements of former preferential tax policies that were due to expire. They will now remain in effect until 31 December 2027.

China Extends VAT Incentive Measures for Small-scale Taxpayers

On 1 August, China’s Ministry of Finance and State Taxation Administration jointly issued the Announcement on the Policy of Reducing and Exempting VAT for Small-scale VAT Taxpayers (“Announcement”).

Small-scale taxpayers refer to taxpayers with an annual taxable income of RMB 5 million or less. Unincorporated entities, bodies, or sole proprietorships may, however, opt to be considered as small-scale taxpayers for tax purposes, even with annual taxable sales exceeding RMB 5 million.

The Announcement extends the validity of a preferential tax policy promulgated earlier in 2020, which has since been extended several times. The tax relief sought to tide small businesses over pandemic-induced financial hardships.

According to the Announcement, small-scale VAT taxpayers with monthly sales of no more than RMB 100,000 can continue to enjoy tax exemption until the end of 2027. In addition, a concessionary VAT rate of 1 per cent, instead of 3 per cent, will be levied on their taxable sales. Items to which a pre-payment VAT rate of 3 per cent applies shall be subject to a reduced rate of 1 per cent.

The Beijing National Accounting Institute noted that the tax sweeteners would help ease the burden on small businesses, saving small-scale taxpayers at least RMB 100,000 every year.

Foreign-invested Companies Express Optimism about Doing Business in China

According to a survey conducted by the China Council for the Promotion of International Trade, over 80 per cent of foreign-invested companies doing business in China expect their profitability to remain the same or grow this year.

Conducted between April and June of this year, the study surveyed 800 foreign companies spanning 26 provinces, autonomous regions, and municipalities. Almost 70 per cent of foreign-invested companies expressed optimism about China’s business outlook for the next five years. According to more than 90 per cent of surveyed companies, the appeal of the Chinese market is likely to increase or remain at the same level.

Out of the foreign companies surveyed, approximately 59. 82 per cent operate in the processing and manufacturing industries. Additionally, micro-, small-, and medium-sized enterprises make up 64.6 per cent of respondents.

Among the top reasons cited by respondents for investing in China include: its large market size (77.54 per cent), numerous preferential policies (53.36 per cent), and sophisticated industrial and supply chains (39.91 per cent).

The above promising results reflect the confidence of foreign-invested companies in the stability and growth of their returns on investment in China.

Shanghai Introduces Global Partner Scheme to Boost Foreign Investment

The Shanghai Municipal Commission of Commerce has recently promulgated the Measures for Implementing the Shanghai Global Partners for Foreign Investment Promotion. The programme targets high-quality enterprises, institutions, or organisations that wish to partner with Shanghai and collaborate on promoting foreign investment. Through this scheme, China aims to enhance Shanghai’s allure as a magnet for global investors and drive foreign investment.

Eligible scheme participants can be broadly divided into the following groups.

  • Professional service providers: leading accounting firms, law firms, real estate consultancies, consulting agencies, etc.
  • Financial institutions: multinational banks, well-established venture capital firms, sector-specific funds, etc.
  • Industrial chain-related partners: top 500 multinationals, large enterprises operating in Shanghai’s pillar industries, etc.
  • Business associations: trade promotion bodies, chambers of commerce, trade associations, etc.

Global Partners bring a wealth of resources, deep industry expertise, and access to various platforms and information channels to the table. They play an active role in promoting and assisting in the implementation of foreign-invested projects that are aligned with Shanghai’s industrial development vision. Their scope of responsibilities also includes providing advice related to industrial planning and policies, and organising investment promotion activities.

To qualify, applicants must, besides being in good standing and full compliance with Chinese laws and regulations, contribute to and support Shanghai’s development.

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