25 April 2017
State Council Updates VAT, Investment Incentives and Tax Deductions
At an executive meeting on 19 April 2017, the State Council formally adopted the following amendments to China’s tax regime:
- As part of continued moves to replace business tax with value-added tax (VAT), while streamlining the overall VAT structure, as of 1 July 2017, the four existing VAT brackets will be reduced to just three - 17%, 11% and 6%. The current 13% tax bracket is to be abolished, with the tax rate for such products as agricultural items and natural gas reduced from 13% to 11%.
- For the period 1 January 2017 to 31 December 2019, the annual taxable income threshold has been raised from RMB300,000 to RMB500,000 in the case of small enterprises with limited profitability. All qualifying enterprises will be entitled to a 50% deduction in the calculation of their taxable income and then taxed at a preferential rate of 20%.
- For the period 1 January 2017 to 31 December 2019, the pre-tax weighted deduction of R&D expenses incurred by small and medium-sized high-tech firms with regard to the development of new technologies, new products and new processes, will increase from 50% to 75%.
- Backdated to 1 January this year, any venture capital firms investing during the seeding or start-up stage of a high-tech company’s development will be entitled to offset their taxable income against 70% of their investment, providing the new company is based in one of the designated pilot regions for comprehensive innovation and reform (the Beijing-Tianjin-Hebei region, Shanghai, Guangdong, Anhui, Sichuan, Wuhan, Xi’an, Shenyang and the Suzhou Industrial Park).
- A number of tax reduction policies due to expire at the end of 2016 are to be extended until the end of 2019. The tax incentives affected include: The reduction of urban land use tax on bulk commodity storage facilities owned by logistics enterprises to 50% of the rate applicable; the exemption of VAT on interest income from small loans granted by financial institutions to farmers and the extension of this tax incentive to all legally- compliant small loan companies; and reductions in VAT, urban maintenance and construction tax, educational surcharges and individual (enterprise) income tax for university graduates, the long-term unemployed, ex-servicemen and other key groups who have only recently secured jobs or launched their own businesses.
For further detail on the revised tax measures, please see website of the State Council in Chinese.