By Hengka (Henry) JI, Partner, and Jiannan Zhu, Associate, Zhong Lun Law Firm, Beijing
China’s Ministry of Finance and other government authorities implemented several preferential tax policies to further support scientific and technological innovation and the development of emerging industries through a series of announcements issued from March 16 to April 15.
The preferential tax policies mainly apply to import tariffs and value-added tax (VAT).
The announcements are very detailed regarding the specific industries and applicable conditions.
Multinationals with operations in China should consider the developments’ impacts for tax planning, management, and tax reporting.
Emerging display devices industry
Import tariff exemption policies set out in new Announcements No. 19 and No. 20, issued March 31, apply to some materials and components of the emerging display devices industry. The referenced materials and components must be critical for the product manufacture and must satisfy the condition that domestic suppliers have no capacity to produce or meet the needs of emerging display devices companies.
The particular list of materials and components will be jointly stipulated, issued and adjusted, as necessary, by the Ministry of Industry and Information Technology, the Ministry of Finance, the state administration of taxation and the General Administration of Customs.
Announcements No. 19 and No. 20 also allow companies that undertake significant emerging display devices projects to pay their import VAT in installments.
These policies are effective from January 1, 2021, to December 31, 2030.
Integrated circuit and software industry
Announcements No. 4 and No. 5, issued March 16 and 22, respectively, stipulate import tariff exemption policies for materials and components related to the integrated circuit and software industry. Similar to the tariff exemption policies for the emerging display devices industry, the pre-condition of the favorable policies is that domestic suppliers have no capacity to produce or meet the needs of enterprises in the relevant industries.
In addition, Announcements No. 4 and No. 5 offer an installment plan for the import tariff VAT payment by targeted companies that undertake significant integrated circuit projects.
The National Development and Reform Commission, in conjunction with the other involved authorities, will develop and jointly issue the list of integrated circuit manufacturers, advanced packaging and testing enterprises, and manufacturers of key raw materials and spare and accessory parts for the integrated circuit industry eligible for import tariff exemption.
These government authorities will also list key integrated circuit design enterprises and software enterprises encouraged by the state that are eligible for import tariff exemption.
In addition, they will issue the list of tariff-exempt imports of self-use raw materials and consumables for production (including those used for research and development), special building materials, supporting systems, and spare and accessory parts of integrated circuit production equipment (including imported equipment and domestically manufactured equipment) that cannot be produced domestically or cannot meet needs in terms of performance.
Finally, the authorities will provide the list of major integrated circuit projects and the list of enterprises undertaking the construction of such projects.
These policies are effective from July 27, 2020, to December 31, 2030.
Tariff regarding scientific and technical research
Announcement No. 23, issued April 15, exempts from the import tariff, import VAT and consumption tax equipment that is used for scientific research, technical innovation and educational purposes. It also eliminates the import VAT for books and materials that are used for these objectives.
There is another restriction for the imported equipment in that the domestic producers must either have no ability to make the imported equipment or not have the production capacity to meet market needs. However, there is no such requirement for the imported books and materials.
The applicable entities under Announcement No. 23 are scientific and technical research institutions, technical development organizations and regular institutions of higher education’s administrative schools and libraries. A noteworthy part of this announcement is that the range of applied entities is quite broad, including research institutions in enterprises, recognized private non-enterprise entities and recognized foreign-funded research and development centers.
This announcement is effective from January 1, 2021, to December 31, 2025.
Small-scale VAT taxpayers
To further support the development of micro and small-sized enterprises, the Ministry of Finance and the state administration of taxation issued Announcement No. 11 on March 31. This announcement states that from April 1, 2021, to December 31, 2022, small-scale VAT taxpayers with a monthly sales amount of 150,000 yuan (approx. USD 22,455) or less shall be exempt from VAT.
This policy significantly reduces the burden on micro and small-sized enterprises, including these kinds of foreign business operations in China.
Aviation equipment for maintenance
Announcements No. 15 and No. 16, issued March 31, exempt from the import tariff maintenance-purposed aviation equipment from January 1, 2021, to December 31, 2030. These two announcements limit the exemption to equipment for which there is no domestic capacity to produce or meet the needs of enterprises in the relevant domestic industries.
The specific list of involved equipment will be jointly issued by the Civil Aviation Administration, the Ministry of Industry and Information Technology, the Ministry of Finance and the state administration of taxation.
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Hengka (Henry) JI is a partner and Jiannan Zhu is an associate at Zhong Lun Law Firm, Beijing.
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