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There have been several notable tax developments in China up until May 2023, today, let's have a closer look at some of the most notable.
1. The 14th National People's Congress’ Tax-related proposals
At the first session of the 14th National People's Congress on the 13th of March 2023, the National Economic and Social Development Plan of Year 2023 ("2023 Plan") was approved. The strategy guarantees the continuation and optimization of the current tax and fee reduction measures. Furthermore, at an executive State Council meeting, China's State Council announced the extension of a number of tax reduction policies. According to the government's estimates, these regulations would save eligible enterprises more than RMB 480 billion in yearly taxes and fees. Following the executive State Council meeting, the relevant governmental departments have released the official policies for implementing the tax-related proposals.
2. The debut of the new E-tax system: A functional module allowing non-resident firms to register for tax and file domestic equity transfers
In April 2023, China's State Taxation Administration (STA) launched a cross-border tax service for non-resident enterprises through the introduction of E-tax China, which is a functional section in the nationwide online tax filing system; through this module, overseas enterprises can directly register for tax, make filings, and attend to domestic equity transfer settlements online. The new function supports both Chinese and English and is specifically applicable to non-resident enterprises that receive equity transfer income from non-listed companies (excluding restricted shares) in China and must file enterprise income tax ("EIT") and stamp duties on their own for each occurrence. The E-tax system offers services including contract information gathering, intelligent tax obligation judgment, tax computation, and cross-border tax payment. According to news reports, this service is seen as a solid response to the increasing need for cross-border tax services, as it should relieve foreign taxpayers of the hassle of on-site inspections and tax filings.
3. Increase in the super deduction ratio for R&D expenses
The 100% super-deduction ratio for R&D expenses became effective in January 2023, with no expiration date, replacing the previous ratio of 75%. All eligible businesses are permitted to:
Claim a 100% extra deduction for qualifying R&D expenses incurred for Enterprise Income Tax (“EIT”) purposes; or
If R&D expenses have been capitalized, amortize the intangible assets at 200% of the actual costs expended.
The 80% of the actual expenses incurred in R&D activities entrusted by enterprises to external organizations (excluding personnel) outside of China shall be itemized as the entrusting party's commissioned overseas R&D expenses (subject to specific documentation requirements and material verification).
Such a long-term policy equips enterprises with much clearer expectations and encourages them to better organize their R&D efforts and related capital investment. In addition, for tax purposes, businesses should construct an effective internal management system to record the documentation and aggregate of R&D spending.
At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face in China. If you would like to know more about relevant tax policies in China, please contact us at info@phcadvisory.com.
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