- Shanghai offers eligible innovative enterprises headquartered in the city up to RMB 5 Million.
- Nansha District of Guangzhou clarifies criteria to qualify for reduced corporate income tax rate.
Shanghai Offers Eligible Innovative Enterprises Headquartered in the City up to RMB 5 Million
The Shanghai Municipal Development and Reform Commission, together with the Shanghai Municipal Bureau of Finance and the Shanghai Economic and Information Technology Committee, jointly promulgated the Measures for Recognising and Rewarding Headquarters of Innovative Enterprises in Shanghai (“Measures”), which took effect on 1 March 2023 and shall expire on 29 February 2028.
To be deemed the headquarters of an innovative enterprise, the entity must meet the following criteria.
🔵 The enterprise must be registered in Shanghai and operating in the industrial or services sector with:
– Total assets of no less than RMB 200 million or a market value of at least RMB 2 billion;
– Sales revenue of more than RMB 100 million per year or an average compound growth rate of more than 20 per cent in respect of its sales revenue in the last three years;
– Headquarters based in Shanghai that carry out multiple different functions, including sales, financial operations and research and development (“R&D”);
– Two or more branches located outside Shanghai.
🔵 The enterprise’s main line of business must be in an area listed in the National Guidance Catalogue of Key Products and Services for Strategic Emerging Industries and in an industry enumerated in the Statistical Classification of Digital Economy and its Core Industries (2021 version).
🔵 In respect of R&D:
– The enterprise’s annual R&D expenses must constitute more than 5 per cent of its sales revenue (in the case of enterprises operating in services industry, e.g., software and information services, integrated circuit design, it shall be 10 per cent).
– Its total R&D expenses must be more than RMB 50 million per year, 60 per cent of which must be incurred inside China.
– Personnel engaged in R&D activities must constitute more than 10 per cent of the workforce (in the case of enterprises operating in services industry, the percentage shall be 20 per cent), or the total number of personnel engaged in R&D activities shall exceed 100.
🔵 The enterprise must own intellectual property rights in respect of its main products or services in Shanghai, including no fewer than 15 patents, or product registration certificates for certain products, such as medical devices and drugs.
🔵 Precedence shall be given to enterprises with one of the following classifications:
– High-tech Enterprise
– Specialised and New Enterprise
– National and Shanghai Enterprise Technology Centre
– Technological Innovation Demonstration Enterprise
– Shanghai Patent Work Demonstration Enterprise
An enterprise’s eligibility will be assessed on a case-by-case basis; applicants falling short of the above criteria are, nonetheless, encouraged to apply if they have made significant contributions to the economy or their respective industry.
According to the Measures, qualified enterprises are eligible for:
🔵 Up to RMB 5 million if they set up in Shanghai after 1 January 2022 with a paid-up registered capital of more than RMB 100 million;
🔵 A rental subsidy of 30 per cent for three years (the office space area must not exceed 1,000 square metres);
🔵 Financial incentives to the tune of RMB 5 million, RMB 3 million and RMB 2 million to support operations of eligible enterprises whose annual sales revenue, for the first time since 1 January 2022, reaches RMB 500 million, RMB 1 billion and RMB 1.5 billion respectively.
Hong Kong to Expand Foreign-Sourced Income Exemption Regime (“FSIE Regime”) to Cover Capital Gains
On 3 January 2023, the Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill (“Amendment Bill”) came into force, providing for the changeability to profits tax in respect of specified foreign-sourced income, i.e., interest, IP income, dividends and disposal gains.
The aim of the above legislative changes was to have Hong Kong removed from the EU’s grey list of non-cooperative jurisdictions for tax purposes.
However, despite the enactment of the Amendment Bill, Hong Kong remains on the EU’s grey list owing to recent modifications to the EU’s approach.
After a comprehensive review of different jurisdictions’ reformed FSIE regimes, the EU’s Code of Conduct Group updated its position on the treatment of foreign-sourced capital gains in December 2022.
According to the latest requirements prescribed by the EU, capital gains should also be subject to the economic substance requirement.
This means that the Hong Kong Special Administrative Region Government (“HKSAR Government”) must once again take appropriate legislative steps to accommodate these new requirements.
On 15 February, the HKSAR Government issued a press release, announcing that it was committed to finetuning the existing FSIE regime. Further, it would launch a consultation on the proposed changes and target to have the required legislative amendments ready by the end of this year.
Nansha District of Guangzhou Clarifies Criteria to Qualify for Reduced Corporate Income Tax Rate
Together with three other authorities, the Tax Bureau of Nansha District of Guangzhou have jointly issued the Announcement on Issues Concerning Substantive Operations of Enterprises in Encouraged Industries in Nansha of Guangzhou (Exposure Draft) (“Announcement”) and are seeking public consultation until 30 March 2023.
The Announcement elaborates on the criteria to qualify for the reduced corporate income tax rate of 15 per cent in Nansha District of Guangzhou, in particular, the interpretation of “substantive operations”.
According to the Announcement, an enterprise shall be deemed to have substantial operations, providing that it meets the following requirements:
🔵 The enterprise’s effective organisational management is located in the Nansha Advance Start-Up Zone ; and
🔵 The enterprise exercises substantial overall management and control over production and operation, personnel, accounts and property of the enterprise.
Hong Kong to Implement Global Anti-Base Erosion Rules from 2025
At the end of February 2023, it was announced that Hong Kong would be implementing the Global Anti-Base Erosion Rules (also commonly known as the Pillar Two Model Rules) (“Rules”) and a Qualified Domestic Minimum Top-up Tax (“QDMTT”) prescribed by the Organisation for Economic Co-operation and Development from 2025 onwards.
The main aim of the above-mentioned mechanisms is to ensure that multinational enterprise (“MNE”) groups are subject to an effective tax rate of no less than 15 per cent in every jurisdiction in which they have operations.
The Rules shall apply to the whole MNE group in respect of its consolidated financial statements. In addition, profits sourced in Hong Kong by both Hong Kong-headquartered MNE groups as well as those headquartered elsewhere shall be chargeable to a QDMTT on an equal basis.
Hainan Provides Details on Preferential Corporate Income Tax and Individual Income Tax Policies for Foreign-invested Enterprises and Foreign Citizens
On 1 March 2023, the Working Committee of the Free Trade Port of the Hainan Provincial Committee issued the Core Policy Measures for the Construction of “Two Headquarter Bases” and solicited public input. The public consultation period ends on 30 March 2023.
Qualifying foreign-invested enterprises funded by capital from Southeast Asia and other regions can enjoy a reduced corporate income tax rate of 15 per cent.
In addition, citizens from Southeast Asia and other regions, and employees of the above-mentioned qualifying foreign-invested enterprises are eligible for a reduced individual income tax rate of 15 per cent.
Moreover, the import of certain goods attracts a zero tariff for the above-mentioned qualifying foreign-invested enterprises. They can also enjoy exemptions from corporate income tax for earnings derived from certain overseas investments as well as from duties for added value generated through processing.
Hong Kong Drops Mask Mandate
The Hong Kong Special Administrative Region Government (“HKSAR”) announced on 28 February 2023 that, with effect from 1 March 2023, all mask-wearing requirements would be dropped.
The mandate had been enacted in July 2020 and renewed fortnightly.
Residents are no longer required to wear masks on public transport as well as in outdoor and indoor public places.
However, mask-wearing is still mandatory in healthcare settings, such as hospitals and nursing homes, and at locations where there are vulnerable and high-risk groups.
According to a HKSAR Government spokesperson, “The Government will keep on monitoring closely the epidemic development and the overall operation of the public healthcare system, with a view to safeguarding public health.”
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