Are You Eligible for a CIT Reduction?
- Jun 24, 2023
- Posted by: sinovestconsulting
- Category: Accounting & Tax
To promote business growth and attract investments in strategic sectors, several regions in China have introduced a preferential corporate income tax (CIT) rate for eligible companies. This policy aims to lessen the tax burden by reducing the CIT rate from 25 percent to 15 percent, specifically benefiting companies operating in designated sectors within various development zones.
Who is eligible?
In order to qualify for a reduced corporate income tax (CIT) rate of 15 percent in China, companies must demonstrate that they have significant operations in specific industries within designated development zones. To aid in the implementation of this favorable policy, local authorities have issued guidelines outlining the specific criteria for determining substantial operations.
Lingang New Area (Shanghai)
- Must have been registered in the Lingang New Area since January 1, 2020 and for less than five years in total;
- Must carry out substantial production or R&D activities in the Lingang New Area;
- The company’s main research and development or sales products include at least one key product (technology).
Fujian Pingtan (Fuzhou)
- Derive at least 60 percent of its main business income from industries in the encouraged industries catalog;
- Carry out a “substantive operation” in the Henqgin Cooperation Zone.
Hengqin Cooperation Zone (Zhuhai)
- Derive at least 60 percent of its main business income from industries in the encouraged industries catalog.; and
- Carry out substantial operations in the Nansha New Area.
Qianhai Cooperation Zone (Shenzhen)
- Derive at least 60 percent of its main business income from industries in the encouraged industries catalog.
Hainan FTP (Hainan)
- Derive at least 60 percent of its main business income from industries in the encouraged industries catalog; and
- Be registered and have substantial operations in the Hainan FTP.
Western regions
- Derive at least 60 percent of its main business income from industries in the encouraged industries catalog.
Assessing eligibility for the reduced CIT rate
In many instances, companies are obliged to submit a Substantive Operation Self-Assessment Commitment Form, where they must indicate whether their operations fulfill the eligibility requirements of each respective region.
Local tax bureaus conduct ongoing supervision for companies already benefiting from the preferential policy to ensure they continue to meet the eligibility criteria. This may involve random inspections of their premises. Therefore, it is crucial for companies to maintain accurate records of their current operational status, ensuring that changes in staffing, premises, accounting procedures, production, or other factors do not impact their eligibility for the preferential policy.
