Author: daniela.pilia

China To Defer Tax Payment For Manufacturing Enterprises

On October 27, The State Council’s executive meeting chaired by Premier Li Keqiang decided to postpone the tax payment for small and medium-sized enterprises (SMEs) in the manufacturing sector.

For small and medium manufacturing enterprises (including individual businesses) with annual sales revenue of less than 20 million yuan, all tax will be deferred. For small and medium manufacturing enterprises with annual sales revenue of 20 million to 400 million yuan, the tax will be deferred at a rate of 50%. Enterprises with special difficulties may apply for full tax exemption in accordance with the law.

From November 1st 2021 to the end of the application period in January 2022, the tax exemption is expected to reach about 200 billion yuan for small and medium manufacturing enterprises.

In addition, to ease the operating difficulties of coal power and heat supply enterprises, the payment of tax in the 4th quarter of this year will be postponed. The above measures will be deferred for up to three months.

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China Approves New Property Tax

On 23 October 2021, the Standing Committee of the National People’s Congress (NPC) approved a property tax pilot scheme.

The levy will be limited to a group of pilot cities, and will apply to both residential and non-residential properties and will last for 5 years.

Currently, real estate has been taxed only in Shanghai and Chongqing. Shanghai collects property taxes from homeowners with second properties at an annual rate of 0.4% and 0.6% of the property price, depending on the size of the property, while Chongqing imposes taxes of 0.5% to 1.2% on villas and luxury apartments.

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New Changes To Tax Surcharges

According to the Announcement of SAT [2021] No.26 and No.28 of the State Taxation Administration (SAT) on Matters concerning the Collection and Administration of Urban Maintenance and Construction Tax which came into effect on September 1st 2021, urban maintenance, construction tax maintenance and education surcharges will not be levied on the amount of VAT or consumption tax paid for imported goods or for labor services, or services and intangible assets sold by overseas entities or individuals to China.

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New Changes To Tax Surcharges

The new China Individual Income Tax law (IIT law) which took effect in January 2019 made significant changes for the tax calculation on the individual’s annual bonus, which take effect in January of next year.

Until 31 December 2021 the annual bonus, paid to employees both foreign and Chinese once a year, is taxed separately from the salary with a preferential tax calculation method that allows the amount of the bonus to be divided by 12 and a preferential tax rate applied.

Under the new law, starting from 1 January 2022 the preferential tax treatment will no longer be used and the year-end bonus will be included as part of the individual’s annual salary and taxed at the regular IIT calculation rate.

The upcoming implementation of this aspect of the IIT Law is likely to raise company personnel costs.

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New Tax Calculation Method For Individual Annual Bonus

The new China Individual Income Tax law (IIT law) which took effect in January 2019 made significant changes for the tax calculation on the individual’s annual bonus, which take effect in January of next year.

Until 31 December 2021 the annual bonus, paid to employees both foreign and Chinese once a year, is taxed separately from the salary with a preferential tax calculation method that allows the amount of the bonus to be divided by 12 and a preferential tax rate applied.

Under the new law, starting from 1 January 2022 the preferential tax treatment will no longer be used and the year-end bonus will be included as part of the individual’s annual salary and taxed at the regular IIT calculation rate.

The upcoming implementation of this aspect of the IIT Law is likely to raise company personnel costs.

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Shanghai BOC tightens supervision of company address modification

In order to complete the modification of a company’s legal address, the Bank of China in Shanghai now requires that a bank officer pay a visit to the new legal address of the company accompanied by the legal representative or chief financial officer of the company.

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China cuts bank transaction fees

China will cut bank transaction fee for small and micro-sized enterprises and self-employed individuals. Services affected include bank account services, RMB settlement and e-banking and inter-bank ATM cash withdrawal fees. According to preliminary estimates, the implementation of the fee reduction measures is expected to reduce the annual fee expenditure by about 24 billion yuan (about $3.71 billion). The measures will come into effect at the end of September 2021.

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Support measures for three child policy

To encourage larger families, China has introduced a special additional education expense tax deduction. According to the decision on “optimizing the family planning policy”, taxpayer parents with children under the age of three can now enjoy a deduction for Individual Income Tax (IIT) of RMB 1000 a child per month.

Previously, the tax policy only applied to taxpayer parents with children over the age of three. China’s three child policy was introduced on May 31, 2021.

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Shanghai housing fund contribution adjusted

According to the notice on Adjustment of Shanghai Housing Fund contribution, employees’ housing fund base will now be adjusted from average monthly salaries of 2019 to average monthly salaries of 2020. The maximum housing fund contribution is set at RMB 31,014 and the minimum at RMB 2,480.

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Expats to pay social insurance in Shanghai

According to the “Social Insurance Law of PRC”, a national policy issued in 2011, foreigners working in China are required to contribute to the social insurance program. This includes contributions towards pension, medical insurance, work-related injury, unemployment and maternity. However, in practice the Shanghai Human Resources and Social Security Bureau never enforced the national law, instead adopting a local regulation Notice [2009] No. 38 which allowed for expats working in Shanghai to opt out of mandatory social insurance contribution. This notice was renewed and extended by Notice [2016] No. 301 in 2016 until 15 August 2021.

The Shanghai Social Insurance Bureau has now said that the Notice will not be extended further so foreigners working in Shanghai will also be subject to the national law and obliged to make social security contributions.

Meanwhile, authorities have adjusted the maximum cap on the social insurance contributions to RMB 31,014. The minimum amount is RMB 5,975 from which the social security contribution is calculated.

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