In our China Monthly Tax Brief for June 2023, we discuss the VAT Law, Tariff Law, GBA IIT subsidy, and nationwide expansion of the fully digitalized e-fapiao. Further, China companies can now enjoy additional deduction of R&D expenses in July as well.
In June of this year, there were several noteworthy fiscal and tax developments in China that businesses should be aware of. These include the inclusion of the VAT Law, Tariff Law, and various other tax legislation in the 2023 Legislative Plan.
Additionally, starting from July 2023, eligible taxpayers will have more time to apply for the additional deduction on R&D expenses.
The Greater Bay Area has also resumed the application for preferential IIT (individual income tax) subsidies for eligible foreign talents under updated guidelines.
Furthermore, by the end of June, seven provinces launched e-tax digital accounts, and the fully digitalized e-fapiao (invoice) system has been extended nationwide.
VAT Law, Tariff Law, and several other tax laws were included in the 2023 Legislative Plan
On June 6, 2023, the General Office of the State Council released the Legislative Work Plan of the State Council for the Year 2023.According to the plan, the State Council will present the draft Tariff Law to the Standing Committee of the National People's Congress (NPCSC) for consideration. Furthermore, the State Council is preparing to submit several drafts, including the draft Consumption Tax Law, draft Amendments to the Accounting Law, draft Amendments to the Certified Public Accountants Law, and draft Amendments to the Tax Collection and Administration Law, to the NPCSC for review.
Simultaneously, the NPC’s official website published the Key Work Points of the NPCSC for the Year 2023, which emphasized the promotion of tax law development, particularly the Value-Added Tax (VAT) Law and the Tariff Law.
Experts have analyzed that the focus of tax legislation this year will be on the second review of the VAT Law and the initial review of the Tariff Law. It is anticipated that the VAT Law may be passed as early as this year. Additionally, the progress of the Consumption Tax Law, one of the key taxes in China, should also be closely monitored.
Notably, the legislative plan for this year does not mention the Amendments to the Individual Income Tax (IIT) Law and the Real Estate Tax Law. This suggests that the pilot reforms for IIT and real estate tax are unlikely to move forward during this year.
Eligible taxpayers can apply for additional deduction of R&D expenses in July
On June 21, 2023, the State Taxation Administration (STA) and the Ministry of Finance (MOF) jointly issued an important notice, Notice on Matters Concerning Optimizing the Prepayment and Declaration of Research and Development (R&D) Expense Additional Deduction Policy (STA MOF Announcement [2023] No.11), concerning the optimization of the prepayment and declaration process for the additional deduction policy on Research and Development (R&D) expenses.According to the announcement, starting from 2023, eligible enterprises can now benefit from the additional deduction policy for R&D expenses incurred during the first half of the year by making the prepayment and declaration of corporate income tax (CIT) in July. Previously, this policy could only be applied when making CIT prepayment and declaration in October or during the annual settlement and clearance process (also referred to as annual CIT filing or annual CIT reconciliation).
The inclusion of July as an additional time point provides companies with the opportunity to enjoy the benefits of the additional deduction policy three months earlier. Enterprises now have the flexibility to choose between July, October, or the next year's annual CIT settlement and clearance, depending on their specific circumstances. This adjustment is particularly beneficial for small and medium-sized technology enterprises and those facing tight capital chains, as it allows them to access the policy dividends earlier, thereby alleviating financial pressures.
Additionally, the "Notice on Key Tasks for Cost Reduction in 2023," issued by the National Development and Reform Commission, the Ministry of Industry and Information Technology, the MOF, and the People's Bank of China on June 14, 2023, confirms the implementation of a long-term institutional arrangement to increase the pre-tax additional deduction ratio for eligible industry enterprises' R&D expenses from 75 percent to 100 percent.
This decision aligns with the MOF and STA announcements made in March 2023, extending the increased additional R&D expenses deduction ratio for general enterprises. The announcements specify that general industries, excluding tobacco manufacturing, hotels, food and beverage, wholesale and retail, real estate, leasing and business services, and the entertainment industry, are eligible to benefit from this policy. Under the current policy, companies that have already enjoyed these benefits can deduct double the actual R&D expenses incurred from their taxable income, further reducing their CIT burden. This policy aims to encourage companies to actively engage in R&D activities, fostering industry development and technological advancement. Consequently, it is expected to attract more foreign investors to shift functions, including R&D, to China, thereby promoting the establishment of R&D centers and increased investments in China.
We will closely monitor the implementation and impact of this policy going forward.
The Greater Bay Area resumes preferential IIT subsidy application for foreign talent in 2023
On June 17, 2023, four departments in Guangdong Province jointly released the Notice on Further Implementing the Preferential Personal Income Tax Policies in the Guangdong-Hong Kong-Macao Greater Bay Area. The Notice came into effect on June 2, 2023, and simultaneously repealed the Yue Cai Shui [2020] No. 29.The Notice clarifies that for foreign high-end talents and talents in short supply working in the Greater Bay Area (GBA), the portion of their IIT already paid in one of the nine mainland cities of the GBA that is in excess of the first 15 percent of their taxable income is subsidized by the respective municipal government. This subsidy is also exempt from further IIT. The IIT subsidy is capped at RMB 5 million (approx. US$691,266) for each taxpayer in a given tax year. (China’s tax year runs from January 1 to December 31.) The notice also defines and clarifies the “amount of tax already paid” and the conditions that applicants need to meet.
To facilitate the implementation of the GBA IIT subsidy policy, the Guangzhou Municipal Finance Bureau has released the draft Administrative Measures for Financial Subsidies on the Implementation of Preferential Individual Income Tax Policies in the Guangdong-Hong Kong-Macao Greater Bay Area (2023 Revision) for public comments. The public comment period is from June 26, 2023, to July 5, 2023.
According to the draft for public comments, retroactive applications of the GBA IIT subsidy for the 2020 tax year, as well as applications for tax years 2021 and 2022, will be processed together during the application window in 2023. In addition to the Guangdong-wide requirements, Guangzhou also requires the applicant to meet additional requirements for the subsidy, depending on whether they are classified as “overseas high-end talent” or “overseas in-demand talent”.
Both in-demand and high-end talent must meet the following requirements:
- Work or be employed by an enterprise or other institution registered in Guangzhou during the tax year, provide independent personal labor services in Guangzhou, or engage in production and business activities in Guangzhou;
- Work in Guangzhou for more than 90 days in a given tax year;
- Pay IIT in Guangzhou;
- Not been included in the list of untrustworthy joint punishment targets in accordance with laws and regulations at the time of application; and
- Meet the standards set out in the respective in-demand and high-end talent catalogs (see below).
One thing to be noted is that, when calculating the cumulative number of days of working in Guangzhou for "90 days or more," the policymakers have taken into full consideration the impact of COVID-19 control policies over the past three years. When calculating the number of days worked in Guangzhou each year from 2020 to 2022, applicants should include actual working days in Guangzhou as well as the days of public holidays, personal leave, business trips, and training received both domestically and internationally during the period of work in Guangzhou. For 2023, the count will be based on the actual days the applicant stayed in Guangzhou. If the stay is less than 24 hours on a given day, it will be considered as half a day working in Guangzhou.
The dates of the application window have not yet announced. We’ll keep following up with the updates.
For more information on the GBA IIT subsidy in 2023, please read our article: Greater Bay Area Resumes Preferential IIT Subsidy for Foreign Talent in 2023
Seven provinces launch e-tax digital accounts by the end of June, the fully digitalized e-fapiao has extended nationwide
On June 21, 2023, the Shandong Provincial Taxation Bureau announced that its Electronic Tax Bureau's new digital tax account and interactive functions would launch June 29, 2023. According to the notice, starting from June 29, taxpayers (excluding specific business types, such as refined oil enterprises and large enterprises with specific invoice issuance requirements) will be required to use the "Shandong Provincial Electronic Tax Bureau – I Want to Handle Taxes – Tax Digital Account" for various business operations, including checking invoice purposes, querying statistics, and more. The previous use of the VAT Invoice Comprehensive Service Platform will be discontinued.The digital tax account serves as an application that consolidates tax-related data and offers functionalities for taxpayers to access information, manage invoices, and conduct various business operations.
As for the newly introduced interactive function, taxpayers can click on the interactive icon located at the lower right corner of the page to engage with interactive services. This feature provides assistance through text, images, screen sharing, and other means when users have inquiries regarding the operation method and process while utilizing the digital tax account.
Beijing, Anhui, Hunan, Qinghai, Tibet, Guizhou, and Ningxia have also issued similar notices for launching the digital tax account and interactive function by the end of June. In other words, the pilot program of fully digitalized e-fapiao has expanded nationwide.
The China Monthly Tax Brief is a new series produced in association with the experts at Dezan Shira & Associates' China practice.
