A recent posting to the website of the Central Government disclosed that, on 14 June 2017, the State Council committed to set up several green finance pilot zones to support China’s ongoing industrial upgrade. Green finance supports efforts to limit business activities that could damage the environment, now or in the future, and foster those with positive effect.
The pilot zones will be set up in Zhejiang, Jiangxi, Guangdong, and Guizhou provinces and the Xinjiang Uygur autonomous region, each focusing on a different facet of green financing. The following steps will be taken:
As highlighted in KPMG China Tax Weekly Update (Issue 16, April 2017), an 19 April 2017 executive meeting of the State Council decided on a three-year extension to certain existing tax incentive policies that were due to expire by the end of 2016. These include, inter alia, a Value Added Tax (VAT) exemption for financial institution interest income from small loans to farming households.
To complement this, the Ministry of Finance (MOF) and State Administration of Taxation (SAT) on 9 June 2016 jointly issued Cai Shui  No. 44 (“Circular 44”). This clarifies that the current tax incentive policy for rural finance will be extended and will continue in force from 1 January 2017 to 31 December 2019. Circular 44 continues the relevant tax policies set forth in Cai Shui  No. 4 and Cai Shui  No. 102. It specifies the following:
In addition to the tax incentives to help the farmers with their financing needs as set out in Circular 44, measures were also recently taken to preserve existing VAT preferences for farmers and enterprises engaged in the processing of agriculture products. Processing enterprises that purchase agricultural products, process them, and then sell them on as products subject to VAT at 17%, may claim an input VAT credit calculated as the purchase value of the agricultural products multiplied by 13%. This is a deemed input credit as the purchased agricultural products will typically be purchased without any output VAT having been paid by the selling farmers. The recent changes in Cai Shui  No. 37 maintained the deemed input VAT credit at 13%, despite the fact that the 13% VAT rate band was abolished and absorbed into the 11% rate band. You may access the following KPMG publication for more details:
The previously comprehensive framework of tax authority pre-approvals, which was a central component for Chinese tax administration for many years, was largely dismantled in the course of 2015. Pre-approvals were abolished for, inter alia, accelerated tax depreciation, cost-sharing agreements, tax treaty relief, special tax treatment for corporate tax restructurings, deduction of asset losses, R&D expenses bonus deduction, and for the wide variety of national tax incentives, e.g. investment in Western regions, infrastructure and environmental protection infrastructure, integrated circuit and software enterprises. Just 7 pre-approval items remain - these include pre-approvals for administrative matters such as extensions of tax payment or filing deadlines, but there are no longer any pre-approvals relating to substantive tax treatments for tax computation purposes.
As highlighted in KPMG China Tax Weekly Update (Issue 9, March 2016), the SAT in February 2016 issued Announcement  No. 11 (“Announcement No. 11”) to clarify the implementation procedures and supervision and examination measures of the remaining 7 tax administrative approval items. Announcement No. 11 also published the templates of 14 tax administrative approval documents and set out a list of tax administrative approval sub-items.
The remaining 7 tax administrative approval items including:
This is a notebook dedicated to document my thoughts, my projects and my life in 20s.In a bid to make tax administration even more standardised and convenient, the SAT recently issued Announcement  No. 21 (“Announcement No. 21”). This further streamlines the procedures for handling tax administrative approval items, and updates the templates of tax administrative approval documents and the list of tax administrative approval sub-items set out in Announcement No. 11. The main changes aim to, inter alia:
Other refinements include a 24-hour available facility for taxpayers to make appointments to consult on tax approval issues, and improved channels for filing administrative approval documents. Announcement No. 22 will be effective from 1 July 2017.
As highlighted in KPMG China Tax Weekly Update (Issue 23, June 2017), the MOF and SAT on 6 June 2017 jointly issued Cai Shui  No. 43. This clarified that from 1 January 2017 to 31 December 2019, eligible small enterprises whose taxable income falls under RMB500,000 (previously RMB300,000), may pay CIT on 50% of their whole income at a rate of 20% (i.e., effective rate is 10%).
Separately, the SAT on the same day issued Announcement  No. 23 (“Announcement No. 23") further clarifying CIT collection matters:
Where a small enterprise has claimed the incentives at the time of prepayment, but is not qualified for small enterprise when performing CIT annual filing, the enterprise shall make a retroactive tax payment.
As highlighted in KPMG China Tax Weekly Update (Issue 21, May 2017), on 16 May 2017, the People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) issued the joint Announcement on the launch of the Bond Connect scheme to operate between Mainland China and Hong Kong (“Bond Connect”). Northbound Trading will commence in the initial phase, i.e. overseas investors from Hong Kong and other countries and areas (overseas investors) will be permitted to invest in the China Interbank Bond Market. The Hong Kong and Mainland Financial Infrastructure Institutions will handle trading, custody, settlement etc.
To ensure that Bond Connect is rolled out in a standardized and orderly way, the National Interbank Funding Center on 12 June 2017 published the draft Trial Trading Rules for Bond Connect (“the draft”) to seek public comments. The draft applies to Northbound Trading, and covers issues of investors management, basic market rules, price quotation and trading, market monitoring, disposals and information disclosure, etc. Further guidance on Bond Connect is expected in the coming weeks in the run up to the launch of the new system, potentially including tax guidance.
** Mutual access between the stock markets of Mainland China and Hong Kong was established through Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, implemented in 2014 and 2016, respectively. For more details about the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect and their transaction tax treatment, please read the following KPMG publications:
As highlighted in KPMG China Tax Weekly Update (Issue 23, June 2017), on 7 June 2017 the State Council committed to further cut taxes and fees imposed on enterprises in China. This includes, amongst other changes, eliminating contributions to special funds for the structural adjustment of industrial enterprises. This fund contribution was a surcharge levied on top of power prices, and had been collected throughout the country since 1 January 2016 (see KPMG China Tax Weekly Update (Issue 4, February 2016) for details).
To implement the State Council’s commitment, the MOF on 15 June 2017 issued Cai Shui  No. 50, officially announcing that this fund contribution will be abolished starting from 1 July 2017. After that, centrally administered subsidies for the structural adjustment of industrial enterprises will be deployed to support the local governments and the central government-owned enterprises in addressing the overcapacity in the steel and coal sectors, especially for employee relocation.