Responding to the coronavirus infection and pneumonia (2019-nCoV), The Chinese government has been issuing various regulations to support enterprises in this difficult period. Those regulations are mainly related to the Value-Added Tax (short for VAT), enterprises’ losses and donations contributed to tax adjustment. The main principles are as follow, especial the remarked words： 

• Qualifications for Applying for Tax Deduction or Exemption 

The regulations issued by the Chinese government stipulate that only the VAT can be exempted or deducted for specific incomes of enterprises.

①  VAT exemption：

• Application requirements: income of public transportation service, life service or personal express service. Public transportation service includes car-hailing platforms, like UBER and DIDI; Life service includes culture, sports, education, tourism, housekeeping, entertainment, medical treatment, restaurant, accommodation, and so on; personal express service means the recipient must be an individual rather than a company or institution. 

• For the VAT already paid by those qualified applicants, a refund or offset could be applied to the tax authorities. 

• Reference: MF&STA [2020] no.8 and STA [2020] no.5

②  VAT Deduction ：

• Application requirements: only for the small-scale taxpayers whose gross income are less than 5,000,000RMB during the last12 months. No limitation on the business scope nor the type of corporation, both liability limited companies, and joint ventures can apply for the deduction.

• VAT exemption will only be available for the incomes of all small-scale taxpayers of Hubei Province incurred from 01/03/2020 to 31/05/2020. Small-scale taxpayers of other provinces can only enjoy a VAT rate deducted from 3% to 1%.

• Reference: MF&STA [2020] no.13 and STA [2020] no.5

• Regulations on enterprises’ losses incurred in 2020

As a result of the outbreak of the 2019-nCoV, a lot of enterprises have suffered significant losses. However, there are still no regulations to exempt or deduct the enterprises’ income tax expressly, even though, Chinese government has stipulated that losses suffered during 2020 by those enterprises, affected seriously by the 2019-nCoV can be carries forward and made up by the income during subsequent 8 years, which has been extended from the previous 5 years.  

• Application requirements: The applicant must be from catering, tourism, accommodation (such as inn, hotel, motel, etc.) or transportation industry. 

• Reference: MF&STA [2020] no.8 and STA [2020] no.5

• Donations Contributed Tax Adjustment

Many enterprises and individuals donated during the 2019-nCoV. As stipulated by the Chinese government, all expenditures or costs incurred due to the donation can be deducted before tax. However, there are few important points need to be aware of.

• The donation shall be delivered to the hospital directly or to official organizations, such as the Red-Cross institution or governments. Do not forget the donation receipt and indicate the value of the donated materials in the receipt.

• To the personal donator, it would be better to deduct the donation expenditures during the time of income tax declaration. We might discuss this topic in another article.

• Reference: MF&STA [2020] no.9 and MF&STA [2019] no.99

• Additional Supportive Regulations to Support Enterprises

From our perspective, there would be more supportive regulations from the Chinese government afterward to help enterprises getting through difficult times. 

- Team Members -

Anita Wang

Partner and Leader of the Tax Department

Practicing on Finance and Tax

Working language: Chinese and English

Email：wanglingru@zlwd.com

Zoraida Liang

Partner and Leader of the Latin Department

Practicing on International Investment and Trading

Working language: Chinese, Spanish and English

Email：Liangxinyue@zlwd.com