Effective from 1 January 2023 to 31 December 2025, qualifying enterprises established within the Qianhai Shenzhen-Hong Kong Modern Services Industry Cooperation Zone (Qianhai Zone) can benefit from a reduced Corporate Income Tax (CIT) rate of 15% (Caishui [2024] No. 13).
On May 17th, 2024, eight government authorities in Shenzhen jointly issued public notice (PN) [2024] No. 1 (PN 1) clarifying the substantive operation criteria for enjoying such preferential CIT policies.
The criteria for substantial operations, as detailed in the newly issued PN1 compared to those stipulated in the 2023 PN No. 4, remain largely unchanged. Specifically, substantial operations typically require that production and business activities, personnel, accounting, and assets all be conducted within the Qianhai Zone.
According to the official interpretation of PN 1, enterprises that exhibit any of the following characteristics are considered non-compliant with the substantial operations requirement:
- Lacking production and operational functions, solely performing financial settlements, tax filings, and invoice issuance for businesses conducted outside the Qianhai Zone;
- Having a registered address that does not match the actual operating address, and either cannot be contacted or fails to provide a verifiable operating address upon contact.
Enterprises wishing to avail themselves of these tax incentives should self-assess compliance, declare their eligibility, and retain relevant documentation for follow up inspection. Tax authorities will conduct comprehensive audits on all newly qualified enterprises each year and sample audits on existing enterprises.
The primary update in the 2024 Public Notice, as compared to the 2023 version, is the inclusion of the Shenzhen Bao’an Tax Bureau, alongside the Shenzhen Qianhai Tax Bureau, as the in-charge tax authorities.