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China: additional tax cuts package to be delivered in 2018

After the VAT rate adjustments that will be implemented starting from May 1st 2018, the China State Council announced on April 25th 2018 additional tax cuts, in order to further stimulate the development of small and micro businesses and the creation of new jobs, by reducing the cost for innovation and entrepreneurship, facilitating the access to finance and reducing the overall tax burden.

In accordance with the guidelines set out by the Central Economic Work Conference and the Government Work Report, the State Council introduced the following tax measures:

  • the annual taxable income threshold of small and microbusiness eligible for halved income tax will be raised from 500,000 CNY to 1,000,000 CNY. The measure will be effective for three years, from January 1, 2018 to December 31, 2020 and will greatly reduce the corporate tax burden for a numbers of small enterprises;

  • the per unit value of newly – purchased equipment eligible for one – time tax deduction will be raised from 1,000,000 CNY to 5,000,000 CNY. The measure will be implemented for three years, from January 1, 2018 to December 31, 2020, and will raise the ceilings on deductible purchases of equipment;

  • the pilot preferential tax policies for venture capital firms and angel investors, implemented in eight innovation and reform experimental zones, will be extended nationwide. These investors will enjoy a tax incentive that deducts the 70% of their investment from the taxable income of early stage high tech start up. The tax incentive will be implemented from January 1, 2018 for corporate income tax and from July 1, 2018 for personal income tax;

  • the precedent preclusion of the expenses of commissioned overseas R&D from additional tax deductions will be abolished from January 1, 2018

  • the time limit for the capital loss carry-over of high tech enterprises and technological small and medium enterprises will be extended from five to ten years. The measure will enter in force from January 1, 2018.

  • the tax deduction for the employee training expenses will be raised from 2.5% to 8% for all the companies. The measure will be applied from January 1, 2018.

  • The stamp duty relief for books of account starting from May 1, 2018.

The above measures will lower the overall tax burden of the companies by more than 60 billion RMB and clearly highlight the direction taken by chinese authorities on tax and fiscal matters.

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