China has rolled out more tax cuts worth up to RMB 60bn for small businesses to encourage innovation. Companies can enjoy full benefits from the new measures if they obtain guidance from the right partner.
The move is the latest attempt by the world's second-largest economy to maintain its strategic position as one of the leading countries driving technology advancement.
The main purpose of these measures is to boost innovation and entrepreneurship amongst small and micro businesses by reducing the cost of investment. The seven measures announced by the State Council on 25 April 2018 will pump up to RMB 60 bn into the small and micro businesses' research and development (R&D) efforts.
These are the seven new tax measures companies should take note of:
Effective for three years starting from 1 January 2018 until 31 December 2020:
- the current RMB 1m threshold for a one-time tax deduction on the purchase of instruments and equipment per unit has been raised to RMB 5m, significantly reducing the cost of major equipment.
- the RMB 500,000 annual income tax threshold eligible for a 50% tax reduction that is applicable to small and micro businesses has now been increased to RMB 1m.
Effective from 1 January 2018:
- any expenses incurred for R&D projects commissioned to overseas companies has now become tax-deductible.
- capital losses incurred by high-tech firms and technology companies can now be carried over for 10 years, extending timeframe for them to become profitable.
- the tax-deductible rate for employee training costs has been raised to 8%, applicable for all small and micro businesses compared to the previous condition where the benefit is only available for high-tech companies.
Effective from 1 May 2018:
- stamp duty relief is available for all books of account.
And as a boost for investors, the tax incentive for the venture capital firms and angel investors in the country's eight innovation and reform experimental zones and the Suzhou Industrial Park, where 70% of their investment can be deducted from the taxable income of the seed and early stage high-tech startups they finance is extended nationwide.
For corporate investors, this is available starting from 1 January 2018 and as for individual investors, the start date for application is 1 July 2018.
What does this mean for the companies?
Now that these new incentives are in place, companies need to act fast in order to tap into the opportunity. Interpretation of the new regulations is complex in some cases and some companies require a proper assessment of eligibility before sending their application to the relevant tax authorities for pre-approval.
It is critical for companies to set up their ledgers and accounts to clearly identify the different categories of eligible costs and expenses while ensuring the relevant departments collect and archive all original supporting documents as a record. Some of the new incentives applications such as the increased R&D one-off expense deduction is particularly complicated and time-consuming. Small businesses could miss the opportunity in enjoying these significant benefits by submitting an erroneous filing.
To remain competitive in this aggressive market, small businesses need to optimise their efforts to enjoy the full benefits arise from the government's new tax measures whilst staying compliant with the regulations. This is why consulting with a local expert that has in-depth knowledge and experience is ideal for small businesses to expand in China.
Talk to TMF Group
TMF China provides both one-off and ongoing tax compliance services to clients that help make sure they stay compliant, which include the assessment and application for the new incentives detailed above. We can also take care of vital administrative tasks on a global scale that could not only improve the efficiency of your organisation but also increase compliance, transparency, flexibility and focus on your core activity.
Want to learn more about our services? Talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.