April 2022 / China

China will further leverage export tax rebates to provide stronger support for foreign trade enterprises, according to a circular jointly released by the State Taxation Administration and other government organs.

The circular outlines measures to improve export tax rebate policies and streamline procedures for applications.

Efforts will be made to strengthen the linkage of export credit insurance and export tax rebate policies, and improve rebate policies for processing trade firms, according to the circular.

The country will step up efforts to enhance data sharing and smooth the connections among customs, tax and other departments to further streamline export tax rebate procedures, it said.

Efforts will also be made to support cross-border e-commerce firms by encouraging qualified enterprises to actively claim export tax rebates, it said.

A State Council executive meeting earlier this month decided to increase export tax rebates to promote foreign trade development. Enterprises with better credit records will enjoy greater customs clearance and tax refund facilitation.

The Ministry of Finance and the State Taxation Administration released on March 24, 2022 the No.15 Announcement in 2022, clarifying the issues related to exemption of VAT for small-scale VAT taxpayers.

It is clarified that, starting from April 1, 2022 to December 31, 2022, small-scale VAT taxpayers would be entitled to VAT exemption for the taxable sales income applicable to the tax rate of 3%, and suspension of prepayment of VAT for VAT prepaying items at a rate of 3%. The document also extends the preferential tax policies as stated in Article 1 of the Announcement on Continuing the Implementation of the Partial Tax Policies as a Response against the Covid-19 (Announcement No.7 of the MOF and STA) to March 31, 2022. Specifically, the taxable sales income of small-scale VAT taxpayers earned before March 31, 2022 would be taxed at a reduced rate of 1% instead of 3%, and the prepaying VAT items applicable to a 3% rate would be taxed at a reduced rate of 1%.

The announcement is hereby made on policies for the further refund of end-of-period VAT credits, which I offer the full announcement in the attachment for your reference. Since the announcement is complicated, I summarize the key contents for your better understanding:

Core policy:

Small and micro enterprises in all industries and large and medium-sized enterprises in 6 industries, such as manufacturing, will be refunded with the existing VAT credits in a one-off manner and the incremental tax credits on a monthly basis.

Industries such as manufacturing: including "Manufacturing", "Scientific research and technology services", "Electricity, Heat, gas and water production and supply", "software and information technology services", "ecological protection and environmental management" and "Transportation, Storage and postal services"

The judgment standards applicable herein to small and micro enterprises and manufacturing industries that most of our clients may belong to are listed in the attachment.

Time schedule:

Refund of incremental VAT credits:

All enterprises included in this preferential scheme can start to apply for refund of incremental VAT credits during the April declaration period.

Refund of existing VAT credits:

• For small and micro enterprise: Micro enterprises can apply for refund during the April declaration period while small enterprises can apply for refund during the May declaration period; Tax authority will push the realization of refund to micro enterprise before 30th April 2022 and to small enterprises before 30th June 2022.
• For large and medium-sized enterprises in aforementioned 6 industries: medium-sized enterprises can apply during the May declaration period while large-sized enterprises can apply during the October period. Tax authority will push the realization of refund to medium enterprises before 30th June 2022.

Calculation of existing VAT credits and incremental VAT credits

• Existing VAT credit

The base is the VAT credits at the time when the VAT retention tax rebate policy officially takes effect -- March 31, 2019.

The calculation formula of the refundable credit is: Existing VAT refunds = retained VAT credits (existing) * proportion of input VAT

If the taxpayer has not received a VAT credit before, and the ending VAT credit as of current month is not less than the amount as of March 31, 2019, the existing VAT credit is the amount as of March 31, 2019.

If the ending VAT credit as of current month is less than the end VAT credit as of March 31, 2019, that means that a portion of the base at date of March 31, 2019 has been deducted at a later date. The existing VAT credit is the ending VAT credit as of current month.

After a taxpayer obtains a lump-sum refund of existing tax credit, its existing tax credit will be zero.

• Incremental VAT credits

In essence, it refers to the increase after comparing with the VAT credits as of March 31, 2019.

The calculation formula of the refundable credit is: Incremental VAT refunds = retained tax credits (increment) * proportion of input VAT

Before the taxpayer gets the refund of existing VAT credit, the incremental VAT credit = the current VAT credit - the VAT credit at the end of March 2019. A positive value indicates that the incremental VAT credit is refundable; if less than 0, it indicates that there is no incremental VAT credit.

After a taxpayer obtains a lump sum refund of existing VAT credits, the incremental VAT credit shall be the VAT credit at the end of the current period.

• Proportion of input VAT

It shall mean the ratio of VAT amount indicated on special VAT invoices (including fully digitized electronic invoices bearing the wording "Special VAT Invoices" and standard tax control invoices for sale of motor vehicles), plain VAT electronic invoices for highway tolls, special Customs payment notices for import VAT, and tax payment receipts which have been credited from April 2019 to the tax period prior to the application for tax refund, to the total credited input VAT in the same period.

On 28th March 2022, the State Council announced the implementation of a new special additional deduction on IIT for caring of infants under 3 years old. The new special additional deduction is applicable from January 1, 2022.

The standard of the deduction is CNY1000 every month of every infant on taxable salary. Parents can choose to deduct 100% of the deduction for one parent or 50% of the standard deduction for each parent, and the exact method of deduction cannot be changed within a tax year.

A number of industries and enterprises playing a key role in the nation's industrial and supply chains have restored their production amid Shanghai's battle with COVID-19, in an effort to ensure the smooth flow of important production materials along the industrial chain, municipal government officials said on Friday.

Since the start of this week, 70 percent of the city's 666 key enterprises have resumed operations, with their capacity utilization continuing to rise, Zhang Wei, vice-mayor of Shanghai, said during a news conference on Friday.

Vehicles produced at the SAIC Motor and Tesla plants are constantly rolling off the production lines, manufacturers of related parts and components have also restarted production, and carmakers are working to resume both their production capacity and efficiency, said Zhang, adding that key enterprises in the integrated circuit and chemicals sectors are running at a comparatively high level of capacity utilization.

Apart from being an important international gateway, Shanghai is also a key point in industrial and supply chains at home and abroad.

To be more specific, the city is China's key industrial hub for automotive vehicles, parts and components, and 70 percent of the nation's imported raw materials used in the integrated circuit and chemical industries are shipped via Shanghai, said Wu Jincheng, director of the Shanghai Commission of Economy and Informatization.

"We are providing full support to the production resumption of large-scale industries and enterprises that are vital in the industrial and supply chains of the Yangtze River Delta region as well as China as a whole," said Zhang.

Wu Gang, vice-general manager of Shanghai Chlor-Alkali Chemical Co Ltd, which is under Shanghai Huayi Group Corp Ltd, said, "We have so far restored 80 percent of our production capacity, up from half when the latest outbreak started in mid-March, so that production at downstream multinational corporations including BASF, Covestro and Huntsman can continue."

"Thanks to the improvement in logistics, a certain amount of production capacity has resumed. Continuous output is extremely important for chemical production, as disruptions will also increase safety and environmental protection costs," Wu said.

"We believe more corporations will restart their production as the spread of the contagion is brought under control. And measures adopted by these key enterprises will accumulate experience for all companies during their operation and COVID-19 prevention," said Zhang, vice-mayor of Shanghai.

Wu from the Shanghai Commission of Economy and Informatization said following the resumption of production of automobiles and related key parts and components, the city will gradually promote other enterprises in key sectors, such as biomedicine, electronics and information, machinery, shipbuilding and marine engineering, advanced materials and consumer products, to restart their operations.

China Daily

The People's Bank of China ("PBC") and the State Administration of Foreign Exchange ("SAFE") released on April 18, 2022 the Circular on Improving Financial Services to Support Economic and Social Development amid Covid Control, which rolls out 23 policy measures.

The Circular called for more financial support for sectors, enterprises, and people affected by the epidemic, urging financial institutions to flexibly support trapped people by reasonably postponing their repayment deadlines, extending the terms of loans, and allowing them to defer payment of principals. For the relevant overdue loans, the financial institutions may choose not to record them as overdue for reporting.

It is clarified that the regulators will conduct the pilot program of issuing quotas for a higher level of RMB settlement facilitation and corporate foreign debt facilitation, allowing for settlement of domestic foreign exchange (FX) loans oriented for trade and export, and the China Foreign Exchange Trade Center will waive micro and small businesses from the fees for transaction of FX derivatives at the inter-bank FX market.

People's Bank of China

The China Banking and Insurance Regulatory Commission released on April 8, 2022 the Circular on Further Stepping up Financial Support for Development of Micro and Small Enterprises in 2022.

According to the Circular, more medium- and long-term credit will be provided to micro and small enterprises in advanced manufacturing and strategic emerging industries, and more effort will be made to meet medium- and long-term capital needs of SMEs in traditional industries for equipment replacement, technological upgrade and green transformation. Banking and insurance institutions will be guided to connect with competent authorities, and to establish and improve information sharing mechanism for SMEs in specialized areas. The institutions shall also improve science-based credit and insurance services, and banks are also encouraged to explore, together with external investment institutions, the "loan + external investment" model to serve science and technology innovation SMEs while keeping risks under control. Insurers shall provide foreign exchange hedging products for SMEs engaging in international trade, and expand the coverage and scale of export credit insurance for micro, small and medium players in this field.

China Banking and Insurance Regulatory Commission