Preferential Tax Policies Released in Shanghai to Aid Businesses

#China

We would like to re-share important tax updates from our sister-company PHC Advisory Tax & Accounting on the preferential tax policies recently released by Shanghai municipality in order to support those enterprises that have been severely impacted by the most recent COVID-19 outbreak in the city.

In order to support domestic enterprises whose business activities, production, and operations have been severely impacted by the most recent COVID-19 outbreak in Shanghai, the authorities will implement measures such as tax rebates, tax reductions, fee reductions, rent reductions, financial subsidies, and financial support. The relief policy aims to fully support related industries and enterprises to overcome difficulties and reduce the impact of the pandemic on economic and social development.

Several policies and measures are proposed, including the tax policies as follows:

1. Large-scale Value-added Tax Credits and Refunds

For small and micro enterprises and individual business that pay taxes according to the general tax calculation method, the existing tax credit will be refunded in full in one instance before the end of June 2022, and the incremental tax credit will be refunded in full monthly from April 1^st, 2022.
For enterprises in manufacturing, scientific research and technical services, electricity, heat, gas and water production and supply, software and information technology services, ecological protection and environmental governance, transportation, warehousing and postal services, the remaining tax credit will be before the end of 2022, and the incremental tax credit will be fully refunded on a monthly basis from April 1^st, 2022.

2. VAT Exemption for Small-Scale Taxpayers

From April 1^st, 2021 to March 31^st, 2022 for small-scale value-added tax (VAT) taxpayers with 3% VAT tax rate, the value-added tax is levied at a reduced rate of 1%. Prepaid value-added tax items with 3% pre-collection rate are prepaid at a reduced rate of 1%.
From April 1^st, 2022 to December 31^st, 2022, small-scale value-added tax taxpayers with 3% VAT tax rate, are exempt from value-added tax; prepaid value-added tax of 3% shall be suspended.

3. Preferential CIT for Small and Low-Profit Enterprises

For small and micro enterprises whose annual taxable income exceeds RMB 1 million but does not exceed RMB 3 million, the corporate income tax (CIT) rate will be halved. The effective tax burden is reduced from 10% to 5%.

4. Increase the Ratio of Additional Tax Deductions of R&D Expenses

Raise the additional deduction ratio for technology-based small and medium-sized enterprises from 75% to 100%.
Speed up the tax deduction of equipment in terms of CIT filing for small and medium-sized enterprises.

5. “Six Taxes and Two Fees” Reduction and Exemption Policy

Small low-profit enterprises and self-employed industrial and commercial households are included in the scope of applicable subjects of the “six taxes and two fees” reduction and exemption policies such as resource tax, urban maintenance and construction tax, real estate tax, urban land use tax, stamp tax (excluding securities transaction stamp tax), cultivated land occupation tax, education surcharge, and local education surcharge.
Within the range of reductions and exemptions stipulated by the state, they will be implemented in accordance with the maximum standards.

6. Extension of a Batch of Preferential Tax Policies

The policy of deferring the payment of some taxes and fees for small, medium, and micro enterprises in the manufacturing industry, which was implemented in the fourth quarter of 2021, has been extended for another 6 months, and the policy of the additional deduction of value-added tax in the service industry is prolonged.

7. Extension of the Tax Filing Deadline

For taxpayers who file monthly returns, the deadline for filing tax returns in March 2022 will be extended from March 15^th to March 31^st.
Those greatly affectedby the pandemic and thus still have difficulties in filing tax returns within the tax filing period in March 2022 may apply for the extension of the declaration.
For those who have difficulty in paying taxes on time due to the impact of the pandemic, and meet the conditions for deferring tax payments, the deferral of tax payment is granted, with a maximum period of no more than 3 months. Tax administrative penalties are exempted for taxpayers who fail to file on time due to the pandemic.

8. Reduction and Exemption of Rent for Small and Micro Enterprises and Individual Industrial and Commercial Households

Small and microenterprises and individual businesses that lease state-owned houses to engage in production and business activities are exempted from rent for 3 months in 2022.
In 2022, for companies located in high-risk areas of the epidemic or their business activities are seriously affected by the implementation of pandemic prevention requirements, a further 3 months of rent will be waived, and a total of 6 months of rent shall be waived throughout the year.
If there is an indirect lease, the sublessee does not enjoy this reduction or exemption policy, and the relevant state-owned enterprises and institutions must ensure that the rent-free measures benefit the ultimate lessee.
Encourage large-scale commercial buildings, shopping malls, parks, and other market operators to appropriately reduce or exempt rents for tenants operating in entities on the basis of negotiation. Various government supporting policies will give priority to market entities that take the initiative to reduce or exempt rents.
For enterprises whose houses and land are urgently requisitioned by the government, if it is indeed difficult to pay real estate tax and urban land use tax, the corresponding real estate tax and urban land use tax can be reduced or exempted.