In recent years the Chinese government has progressively replaced administrative pre-approvals, for various tax treatments and regulatory licenses, with recordal requirements. This has been coupled with more targeted and effective procedures for follow up audit and review.
In the Corporate Income Tax (CIT) space, State Administration of Taxation (SAT) Announcement 76, issued in 2015, provided that all CIT preferential treatment pre-approvals would be fully replaced by a recordal requirements. Taking the next step, SAT Announcement 23, issued on 25 April 2018, now abolishes the recordal requirement. Instead, new, simplified, self-assessment procedures will apply, starting from the CIT annual filing for the 2017 tax year.
Building on Announcement 76, Announcement 23 makes several changes:
Announcement 23 is a welcome development for taxpayers, as the self-assessment system should lower the compliance burden for accessing various incentives, such as the 15% CIT rate for High and New Technology Enterprises. The new rules are in line with the SAT’s broader program to simplify tax administration, set out in 2017 in SAT Circular No. 101.
At the same time, the new approach, by shifting responsibility to taxpayers to ensure they fully meet the incentive criteria, increase their risk of penalties if an adopted incentive is later determined inappropriate on audit. As such, taxpayers may consider making enhancements to their internal risk control systems for better oversight over incentive treatment evaluation and documentation processes, as well as seeking professional advice, as necessary.