With the lockdowns being lifted and businesses getting back to work, China is on the path of gradual recovery, after the coronavirus outbreak. As a great deal of businesses and individuals were not able to generate income for more than 2 months, government intervention is crucial in order to allow businesses to recover and restore stability. The government in China has implemented the following tax breaks, in an effort to aid enterprises and individuals.
The implementation of the following regulations is in accordance with: The Notice of the Tax Policy on Supporting the Prevention and Control of Coronavirus Determined by the Ministry of Finance, General Administration of Taxation (No. 8 document published in 2020).
Individuals directly involved in the protection and treatment of COVID-19
Time period: from January 1st, 2020, the deadline will be announced in accordance with the developments of the epidemic situation.
This applies to medical staff and those workers who participated in the epidemic prevention and control. This includes workers such as doctors, nurses and those who take care of medical waste, as well as auxiliary workers such as ambulance drivers, hospital administrators, cleaning staff etc. Any income or bonus received by these workers from the 1st of January will be exempt from personal tax. In addition, anyone who had imported and donated supplies, that contributed towards the prevention and control of the epidemic will be exempt from paying personal tax.
The material supply of goods and services
Implementation time: from January 1st, 2020, the deadline will be provided at a later date determined by the authorities.
A number of enterprises had produced key materials for the control and prevention of the epidemic. These enterprises enjoy the benefit of a once-off tax deduction on any new equipment purchased in order to expand production capacity.
Furthermore, the following groups of taxpayers are entitled to have parts of their income VAT free:
- Enterprises who transport key materials – any income received for providing transportation services of key materials.
- Public transportation providers – any public transportation service providers who provided their service during the epidemic.
- Essential workers – this includes any providers of goods and services necessary for people’s daily lives, such as grocery stores, supermarkets and delivery drivers.
- Public health administrative departments – for the organization of imported materials used in the prevention and control of the epidemic. These departments will have a tariff exemption on the goods procured.
The encouragement of public donation
Time period: starting from January 1st, 2020. The deadline will be determined at a later point in time, in accordance with any changes that may occur.
Enterprises and individuals who made a contribution through public welfare social organizations or state organs such at a provincial or county level, as well as those who contributed directly to hospitals, will enjoy a full pre-tax deduction. These contributions can either consist of cash donations or the donation of items.
Businesses and individuals who donated any imported materials towards the prevention and control of the epidemic, will be exempt from any import tariff fees, import VAT and import consumption tax.
Support offered for the resumption of work and production
Time period: starting from January 1st, 2020, the deadline will be set at a later date in accordance with the developments of the situation.
For industries and enterprises that have experienced operating difficulties and that have incurred loses, the carry over period of the useful life or economic lifespan of an asset is extended from 5 years to 8 years. This applies to enterprises in the transportation, tourism, catering and accommodation industries.
Reduction and exemption of social security and medical insurance
Time period: phased policy of reducing social insurance premiums and medical insurance premiums from February 2020 (reduction differs in each jurisdiction).
Across China, all enterprises are required to contribute to social insurance and medical insurance for their employees. In an effort to alleviate the financial burden on enterprises, due to the outbreak of the COVID-19 epidemic, the local governments across China were encouraged to determine appropriate reductions and exemptions regarding these payments.
Small and medium sized enterprises: payment of the 3 social insurances (basic pension, unemployment insurance and work-related injury) will be reduced or exempt for a period not exceeding 5 months. For large scale enterprises (excluding government institutions): the payment of the 3 social insurances will be reduced for a period not exceeding 3 months. For enterprises in Hubei (excluding government agencies and institutions) the payment of 3 social insurances will be exempt for a period not exceeding 5 months.
Enterprises facing serious difficulty in production and operation, as a result of the epidemic can apply for a postponement in payment of the social security fees. The period of postponement should not exceed 6 months. The contribution made by enterprises towards the medical insurance of their employees will be reduced for a period not exceeding 5 months.
Due to the nature of these unprecedented times, the government of China has seen the importance of outlining measures to assist businesses and individuals. These reductions and exemptions have been made in order to encourage economic stability and restore continued growth.