May 2024 / China

Beijing Municipal Tax Service and Guangdong Maoming Municipal Tax Service have issued working measures regarding ATR (hereinafter referred to as the “Beijing ATR Measures” and “Maoming ATR Measures”) on May 7,2024 and April 24, 2024 respectively. ATR allows taxpayers to seek from tax authorities the application of tax policies to their future complex tax-related matters.

The two Measures also provide for ruling process, follow-up administration and other relevant issues. Taxpayers who have business plans that may trigger significant and complex tax matters may strongly consider utilizing ATR mechanisms. Currently, tax authorities in multiple locations like Guangzhou Nansha, Shanghai, the Nanjing Area of China (Jiangsu) Pilot Free Trade Zone, Dongfang City and Ding’an County of Hainan Province, as well as Qitaihe of Heilongjiang Province have already offered similar services. Among them, Guangzhou Nansha and Shanghai have introduced relatively detailed ATR measures, while other regions have only briefly outlined their ATR implementation rules. Tax authorities in Shenzhen, Guangzhou, Ningbo, Qingdao, Xiongan New Area and other regions have also formulated relevant regulations but have not released the same to the public.

The Ministry of Finance (MOF), General Administration of Customs, and State Taxation Administration (STA) jointly issued Caiguanshui [2024] No. 10 (Circular 10) on May 9th , 2024, extending the preferential tax policies for imported exhibits previously outlined in Circular Caiguanshui [2023] No. 5 (Circular 5).

Key points of the preferential tax policies:

• Preferential tax treatments: sales of imported exhibits within the duty-free quota during the CIEF 2024 and 2025 will be exempt from import duties, import-level Value-added Tax and Consumption Tax;
• Eligible imported exhibits: the scope of exhibits eligible for the preferential policies remains the same as those listed in Circular 5. Notably, certain imported goods such as tobacco, alcohol and automobiles do not qualify for these exemptions.

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.

China will continue implementing the IIT preferential policy for the Guangdong-Hong Kong-Macau Greater Bay Area (GBA) until the end of 2027. The policy subsidizes the tax burden difference between the mainland China and Hong Kong IIT rates (specifically, the tax amount paid exceeding 15% of the taxable income). This subsidy, which is exempt from IIT, applies to overseas (including Hong Kong, Macau, and Taiwan) high-end and high demand talents working across the nine cities of the Greater Bay Area.

On May 15th, 2024, relevant Shenzhen municipal government departments have released the “Application Guidelines of the financial subsidies on 2023 Individual Income Tax (IIT) for Overseas High-end and High-demand Talents in Shenzhen” (the Guidelines), detailing the application process for these subsidies.

• Starting from 15 May 2024, applicants should submit their application materials for review to their employers through the Guangdong Provincial Government Services Website (https://www.gdzwfw.gov.cn/). After reviewing the materials and providing a written statement and commitment, the employer shall submit the application through the system by 15 June 2024;
• An applicant who is reporting income from personal services may apply independently. Nevertheless, the application must be processed through the employer if the tax amount paid includes IIT from wages or salaries.