Tax Authorities in China Issue further Preferential Policies

Author: Phoebe Luo

I.    Preferential Policies for Taxpayers with Value-added Tax
The policy that is effective from March 1 to December 31, 2020 is applicable to small scale taxpayers throughout China. Measures differ slightly for taxpayers inside and outside Hubei province, which was the epicenter for the coronavirus outbreak.
Taxpayers in Hubei Province, to which a VAT levy rate of 3% is applicable, can be exempt from VAT and the pre-payment VAT on items subject to a pre-tax rate of 3% shall be suspended.
For small scale taxpayers subject to a levy rate of 3% based in other provinces, autonomous regions and municipalities directly under the Central Government shall be reduced to 1% of the taxable sales income. In addition, the pre-payment VAT on items subject to a pretax rate of 3%, shall be reduced to 1%.
II.    Rent Concessions for Small and Medium Enterprises (“SMEs”) and Individual Businesses
  1. Housing Rent Relief
    A. To promote the rental of state-owned housing (which is defined to include state-owned enterprises, government departments, universities, research institutes and other administrative institutions housing), SMEs and individual businesses operating in the service and commerce industry, the first three months of rent shall be exempt. Where a state-owned house is sublet, it is necessary to ensure that the relief benefits the final lessee.
    B. SMEs and individual businesses in the service and commerce industry leasing premises from the Central Committee who face difficulties in operation shall be eligible for rental relief. If the rental relief affects the performance of state-owned enterprises and institutions, it should be taken into account during assessment of the situation.
    C. For SMEs and individual businesses that do not lease state owned premises and are facing difficulties in operation, the lessor is encouraged to support lessees by reducing or postponing the collection of rent. This will be subject to discussion and agreement between the parties.
  2. Improving Fiscal and Tax Preferential Policies
    D. Local governments shall coordinate funding, which includes funding from the Central Government and its own local reserves, to give appropriate assistance to SMEs and individual businesses in the service and commerce industry that rent non-state owned premises. The extent of funding shall be assessed on a case by case basis.
    E. Lessors who reduce rent for SMEs and individual businesses shall see a reduction to their current property and urban land use tax. Preferential tax policies for small scale taxpayers of value-added tax are to be implemented.
  3. Increased Financial Support
    F. State-owned banking financial institutions are encouraged to increase loans with preferential interest rates to SMEs and individuals in affected industries, to assist with rental payments.
    G. Banking institutions are encouraged to develop and promote pledge loan products secured against rental income. State-owned banking institutions shall also provide preferential interest rates to lessors over the year, who have reduced or relieved SMEs and individual business lessees in the service industry from rent.
    H. SMEs and individual businesses that have taken out operational loans and have difficulties with repayment due to the epidemic, shall be shown leniency – Banking institutions are to offer alternative repayment arrangements or loan renewals as necessary. This approach also extends to lessors who have reduced rent on their premises.
  4. Stable Housing Rental Market
    I. Encourage the direct leasing of state-owned premises to SMEs and individual businesses in the industrial and commerce industry. Should it become necessary to sublease a premise, no rental increase shall be allowed in that process.
    J. Should there be difficulties paying rent due to the epidemic, the lessor and lessee shall strive to maintain the relationship and hold consultations on an equal footing to discuss compliance with the contract. Accordingly, it may be appropriate for the lessor to reduce or postpone the collection of the rent.
    K. Local governments and relevant departments have established adequate dispute mediation mechanisms to assist and offer guidance to parties in lease disputes caused by the epidemic situation.
    L. Responsibilities have been divided among relevant departments to ensure that all policies and measures are implemented accordingly and appropriately. Such division also serves to strengthen supervision and guidance.
III.    Film Industry Tax and Fee Policies:
  1. From January 1, 2020 to December 31, 2020, income generated from film screening services shall be exempt from VAT.
    The term "film screening service" as mentioned in this notice refers to audiovisual services provided to an audience using professional cinema screening equipment by providers holding a "Film Screening Business License".
  2. For losses incurred by the film industry in 2020, the maximum carry over period shall be extended from 5 years to 8 years.
    Enterprises in the film industry are limited to companies such as film production, distribution and projection. It does not include enterprises that disseminate films through the Internet, telecommunications, radio, television or other broadcast networks.
  3. From January 1, 2020 to December 31, 2020, any set up fees relating to industries in cultural affairs shall be exempt.
  4. Any taxes or fees that have been collected before the date of this announcement and are now exempt as under this notice, may be refunded or set off against the taxes and fees payable by the taxpayer in the following months.
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