New Profit Tax Rates for Hong Kong

New Profit Tax Rates for Hong Kong
Hong Kong Chief Executive Carrie Lam recently introduced a two-tier profit tax system, with the tax rate on the first two million HKD of profits reduced to 8.25%. Profits above that amount will be taxed at the standard profit tax rate of 16.5%. An additional tax break will be given to companies that spend on R&D. The first HKD 2 million of R&D spending is eligible for a 300% tax deduction, while spending above HKD 2 million is eligible for a 200% tax deduction.


VAT Cuts from May 1st in Manufacturing & Other Sectors

VAT Cuts from May 1st in Manufacturing & Other Sectors
China’s State Council has announced that starting from May 1st the VAT for general taxpayers in manufacturing sectors will be reduced from 17% to 16%, and for general taxpayers in transportation, construction, basic telecommunication services and agricultural products will be reduced from 11% to 10%.

In addition to the VAT rate cuts, China has increased the VAT threshold for small-scale taxpayers. They are now defined as those whose annual sales are less than RMB 5 million. Previously, the small-scale category applied to taxpayers whose sales fell between RMB 500,000 (US$79,490) and RMB 800,000 (US$127,180).

The policies are expected to help reduce companies’ tax burden by RMB 400 billion in 2018. Domestic and foreign-funded enterprises (such as WOFE, JV) will all benefit equally.


SAT Caps Overseas Cash Withdrawals

SAT Caps Overseas Cash Withdrawals
The State Administration of Foreign Exchange (SAFE) has capped the total amount of overseas cash withdrawals from all domestic bank cards owned by one person at 100,000 yuan.

The notice, Huifa[2017] N.29, implemented as of 1st January of this year, also limits withdrawals to RMB 10,000 per card per day. If an individual exceeds the annual cap in a year, their overseas withdrawals will be suspended in that year and the following year.


VAT Exemption for Small Scale Taxpayers

VAT Exemption for Small Scale Taxpayers
On 30th December 2017 the State Administration of Taxation (SAT) issued a new regulation allowing small-scale taxpayers to be exempt from VAT.

Circular Cai Shui [2017] No. 52 stipulates that small-scale VAT tax payers must account separately for the sales of goods or processing, repairing services from the sales of service or sales of intangible assets.

Tax payers with monthly sales of goods, services, intangible assets, processing or repair services of less than RMB 30,000 will be eligible for VAT exemption from 1st February 2018 to 31st December 2020. The same applies to taxpayers with quarterly sales lower than RMB 90,000.


Tax Exemptions on Reinvested Profits

Tax Exemptions on Reinvested Profits
On 28th December 2017 the Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission and the Ministry of Commerce jointly released a notice allowing deferment of tax on dividends.

Cai Shui [2017] No. 88 (Notice 88) allows a non-resident enterprise to defer payment of tax on dividends derived from a Chinese enterprise if, among other things, the non-resident enterprise directly reinvests the dividends into industries “encouraged” by the Chinese government. On 2nd January 2018, SAT released implementation guidelines for Notice 88 in its Announcement [2018] No.3.

Foreign direct investment (FDI) into the Chinese mainland rose 9.8% year on year to reach 803.62 billion yuan (around 122 billion U.S. dollars in the first 11 months, faster than the 1.9% year-on-year increase registered in the first 10 months, according to data from the Ministry of Commerce.


Tax Bureau to Collect Social Insurance from 2019

Tax Bureau to Collect Social Insurance from 2019
On 23rd July, China’s Central Committee and the State Council released the Reform Plan on the National and Local Taxation Collection and Management System (“Taxation Collection Reform Plan”). According to the new plan, the Tax Bureau will be the only entity responsible for calculating and collecting social insurance contributions. Previously either the Human Resources Bureau or the Tax Bureau could collect social insurance contributions. The new plan is set to take effect on 1st January 2019.


Preferential Income Tax Policy for Small & Low-Profit Enterprises to Expand

Preferential Income Tax Policy for Small & Low-Profit Enterprises to Expand
On 11th July 2018 China’s Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly released the Notice on Further Expanding the Coverage of the Preferential Income Tax Policy for Small Low-profit Enterprises, Caishui [2018] No. 77, according to which, the upper limit of taxable income for small and low profit enterprises that can receive tax preferences has been raised from RMB 500,000 to 1 million.


Shanghai to attract foreign R&D Centers

Shanghai to Attract Foreign R&D Centers
Shanghai Municipal Government will offer financial incentives for foreign-invested research and development centers as the city aims to turn itself into technology and innovation hub.

Foreign investors are encouraged to set up R&D centers as the government will offer 5 million yuan for foreign-invested R&D centers employing more than 100 employees. The R&D centers will also receive subsidies to cover as much as 30 percent of the rent for three years and preferential policies for foreign employers of these centers to have easier access to social services including medical, health services and less processing time for visa and work permits (qualified expats will be given multiple entry visas valid for 5 to 10 years)

According to official data, there were 416 foreign-invested R&D centers in Shanghai by the end of August.