Labour welfare and tax management (COVID-19)
As companies start to resume their business operations throughout China, there are many questions which arise due to the unprecedented nature of the epidemic and the measures which were enacted to prevent the spread of COVID-19. Legislative bodies in China both at State and local levels have issued a number of policies to provide clarity regarding employee employer relationships and the resumption of operation commercial activities.
The following subheadings were the areas in which greater clarity was sought by several firms, so we have collated our answers into the following brief segments. For additional information tailored to your exact situation please do not hesitate to contact us at info@rsa-tax.com
1. Extended holidays and treatment
The State Council extended the Chinese New Year holiday period to February 2nd nationwide. This period is to be considering a public holiday and those working during it shall be paid with a double salary or shall benefit with rest days in lieu.
On the local level, provincial and city governments further instructed that companies operating in non–essential businesses were not resume their activities before February 10th.
These additional days from Feb 3° to Feb. 9° are to be considered as rest days for the employees, and as such an employee in a non-essential business working during this period must be paid double salary or shall benefit with rest days in lieu.
During the quarantine period or if the employee is undergoing medical treatment, they cannot be terminated by the employer. During the quarantine period, the employee is entitled to receive their full salary; while if the employee is undergoing medical treatment, they shall be paid in accordance with the provisions ruling medical leave (not full salary). If an employment contract was due to conclude during either of these periods, it shall be automatically extended until the period concludes.
2. Employer’s role in the prevention and control of the outbreak
Employers are obliged to adopt sufficient measures to ensure a safe working environment in order to prevent an outbreak and spread of COVID-19 when resuming the operations. As such the employer should aim
to collect and verify the health information from the employees, especially those returning from high-risk regions;
to provide necessary protective devices, as face masks and sanitation and disinfection items
to implement internal procedures to reduce the risks of infections;
to encourage the work from home, remotely, online or at staggered shift hours;
to arrange the return of the employees in staggered times;
to postpone the opening hour or to shorten the business operation hours.
The employer shall arrange for its employees to work from home or remotely. If this is not possible, the parties may consult about having vacation or leave days.
In addition, employers are encouraged to arrange flexible working hours, to help facilitate its employees avoid commutes during peak hours. Employers who are experiencing difficulties in resumption of operations may negotiate with the employee's to temporarily adjust workload and salary.
If an employer stops work and production during a salary payment cycle (one month), they are obliged to pay the employees according to the salary standard stipulated in the labour contract. If the cessation continues for longer than a salary payment cycle, and the employees continue to provide normal labour, the salary payment from the company to the employee must not be lower than the local minimum salary limit. If the employee does not provide normal labour during this period, the employer shall provide for their living expenses.
3. Specific labour welfare supporting measures
Enterprises which do not layoff or not reduce the staff may obtain a 50% refund of the actual amount of unemployment insurance contributions paid in the previous year. The yearly adjustment of the social contribution basis is postponed by three months, from April 1st, to July 1st.
In addition, medical insurance contribution rate shall be temporarily reduced in 2020 (by 0.5% in Shanghai).
Enterprises which experience difficulties in paying social contributions during the epidemic prevention and control period may postpone the payment, without incurring in late penalty fines or affecting the insured employee’s benefits so long as they complete the payment within three months after the epidemic prevention and control period is declared over. Enterprises which arranged for employees to attend vocational online training during the business suspension period are entitled to receive a subsidy equal to 95% of the actual cost incurred.
4. Extended tax deadline and tax payment
The State Administration of Taxation extended the deadline for the monthly tax return from February 17th to February 24th.
Taxpayers greatly affected by the pneumonia outbreak could defer the payment of taxes for a maximum of three months, without incurring in fines and penalties.
Enterprises operating in industries greatly affected by the COVID-2019 (e.g., transportation, catering, accommodation, tourism) can carry-forward the loss incurred in 2020 up to eight years (instead of five years).
Enterprises could apply for a reduction or exemption of the real estate tax (1.2% building value) and the urban land use tax (RMB x sqm according to local regulations).
5. Tax treatment of charity donations
Donations from enterprises and individuals to public welfare organizations and state organs as the People’s Government bodies are deductible when computing the taxable income to be subject to company income tax and individual income tax and exempted from VAT, consumption tax and additional surcharges. (donation is tax deductible and not subject to VAT)
Donations related to imported key materials, disinfection articles, protective devices and similar goods may be exempted from customs duties, value-added tax and consumption tax from January 1st to March 31st. (no duties on import of medical materials)
6. Supporting measures for companies and individuals directly involved in the outbreak control and prevention
The bonuses and allowances received by medical personnel and prevention workers involved in the outbreak control and prevention shall be exempted from individual income tax.
The physical supplies of medicine, medical and protective equipment which are received by employees from their employer shall be exempted from individual income tax; (e.g. employees masks are tax free benefits).
Enterprises which produce key materials for the prevention and control of the outbreak may apply to receive a full refund of the incremental VAT compared to December 2019; (e.g. refund of extra credit VAT for companies producing masks)
Enterprises providing transportation services for key materials may be exempted from VAT and additional surcharges.
Enterprises which provide certain essential living services and materials during the outbreak (i.e., public transportation services, living services and delivery services to residents) shall be exempted from VAT and additional surcharges.
Enterprises which purchase equipment to expand the production capacity of key materials are allowed a one-time deduction of such purchase; (e.g. fixed assets to expand production of masks are 100% one-time deductible)
Health authorities importing materials to be used directly in the prevention and control of the epidemic outbreak are exempted from custom duties.
Tax consequences from the cancellation of export orders of key materials as a result of governmental requisition shall not be borne by the enterprises.