The PRC State Taxation Administration and Ministry of Finance have established new Individual Income Tax, VAT and Corporate Income Tax policies in order to support individuals and businesses facing economic adversity due to the extended period of office and factory shutdowns. The policies aim to optimize production capacity, support medical workers and incentivize donations towards the efforts to contain the COVID-19 outbreak. These tax relief programs come alongside regional and nationwide public health support policies and financial support measures, including extended deadlines, insurance premium refunds, rental subsidies, exemptions and deferrals on social security payments.
Individual Income Tax Exemptions for Medical Professionals
Individuals employed in the medical or public health fields who are engaged in virus containment efforts will be granted Individual Income Tax exemption for expense allowances and bonus payments. Any protective equipment and sanitary products granted to individuals by their supervising organization will not be considered work related compensation and will be completely exempt from taxation. The policy will retroactively apply from January 1, 2020.
Production Capacity Support
Enterprises engaged in the production of essential materials and components are eligible for a one-off corporate income tax deduction on production facility expenditures. Such enterprises can also apply for refunds on VAT credit at the end of their current declaration period. The National Development and Reform Commission and Ministry of Industry and Information Technology will determine which enterprises are eligible. Income earned from the transport of emergency relief materials and utilities, including providing public transport and courier services, are also eligible for VAT exemption. Losses can be carried over by enterprises operating in challenging industries facing crisis related setbacks for up to 8 years, a 3-year extension beyond the previous 5 year limit. Businesses will need to derive over 50% of their income from adversity-faced industries in order to qualify for this preferential policy. Businesses in industries such as catering, hospitality, hotels, tourism and transportation will need to be approved according to the National Economic Industry Classification.
Tax Deductible Donations
Donations made to nonprofit organizations and government agencies responsible for containing the public health crisis will be eligible for full deductions on income taxes. Any business or individual that donates funds or supplies to the COVID-19 crisis response effort will be able to offset the amount from their overall tax burden. Donations should be made to nonprofit organizations or government bureaus at the county level or higher. The value of supplies and equipment used in outbreak containment efforts is also deductible from company or individual income tax. Documentation, such as receipt acknowledgment letters from medical facilities will be required when filing claims.
Self-produced equipment, as well as products that have been commissioned or purchased through government approved sources, will also be eligible for deductions.
Measures introduced by Guangdong Provincial Tax Service
On February 1, 2020, the Guangdong tax authorities launched a set of tax relief policies intended to aid enterprises while supporting counter-epidemic operations. The measures enacted by the Guangdong Provincial Tax Service include expanded support for front line medical professionals, supply and treatment provisions, research funding and preferential tax policies for donations. Guangdong companies will also be able to delay tax filings and payments by up to three months, and will be exempt from urban land use tax.
Epidemic Prevention Supplies exempted from Trade War tariffs
The Central Government enacted the Interim Measures for the Exemption of Customs Duties on Charitable Donations, which exempts imported supplies that are donated for the purpose of preventing and controlling the spread of the COVID-19 virus during the outbreak. Re-agents, protective equipment, ambulances, disinfection vehicles and emergency command vehicles are now included within the list of tariff exempt items. The State Council’s Customs Tariff Commission has also announced that no further tariffs will be imposed on any imports sourced from the US, and any tariffs assessed and collected will be refunded.
The crisis in China illustrates the interconnected structure of international business and global society. Advantages and vulnerabilities are shared by countries and enterprises regardless of where they are located, and this interdependence between nations will only increase over the future. To this end, we encourage tax-deductible donations to ongoing public health protection efforts and recovering communities.
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