On 19 May 2018, five government authorities, including the Ministry of Finance (MOF) and State Administration of Taxation (SAT), jointly issued Cai Shui  No. 44 (“Circular 44”). This permanently extends nationwide the corporate income tax (CIT) incentives for advanced technology services enterprises (ATSEs) that provide a number of ‘technically advanced services’, including computer and information services, research and development technical services, cultural activity-related technical services, and medical services linked to traditional Chinese medicine. These incentives had already been provided from 2016 onwards, on a pilot basis, in 15 service innovation development zones (SIDZs).
It should be noted that the ATSE incentive for these ‘technically advanced services’ has operated in parallel with a longer running ATSE scheme for outsourcing enterprises providing information technology outsourced services (ITO), technical business process outsourced services (BPO) and technical knowledge process outsourced services (KPO). The nature of the incentives granted is the same. The ATSE incentives for outsourced services were expanded to nationwide from 1 January 2017 under Cai Shui  No. 79 (“Circular 79”). Prior to that, they were available for enterprises registered in 31 pilot cities (see KPMG China Tax Weekly Update (Issue 44, November 2017) for details). This means that, with the issuance of Circular 44, both the ATSE schemes for ‘technically advanced service’ providers, and for outsourcing enterprises, apply on a nationwide basis.
For the background on the ATSE scheme for ‘technically advanced service’ providers, in November 2016, five government authorities issued Cai Shui  No. 122 (“Circular 122”), offering the following preferential CIT treatment to ATSEs in the 15 pilot zones, in the period from 1 January 2016 to 31 December 2017:
The SIDZs benefiting from the original pilot program were located in 10 provinces (cities), as well as 5 ‘new zones’. The 10 provinces (cities) were Tianjin, Shanghai, Hainan, Shenzhen, Hangzhou, Wuhan, Guangzhou, Chengdu, Suzhou and Weihai and the 5 new zones were Harbin, Jiangbei of Nanjing, Liangjiang of Chongqing, Gui’an of Guizhou and Xixian of Shaanxi (see KPMG China Tax Weekly Update (Issue 47, December 2016) for details).
Circular 44 applies retroactively from 1 January 2018. According to Circular 44, an ATSE is also required to observe the relevant provisions of Circular 79 when applying for the preferential CIT treatment. These include:
China’s State Council has issued several measures in February 2016, under Guo Fa  No. 16, to support research and development (R&D). R&D institutions, colleges and universities, enterprises, as well as scientific and technical personnel, were provided with a broader range of support measures, beyond tax, in relation to transfer or transformation their scientific and technical breakthroughs (see KPMG China Tax Weekly Update (Issue 8, March 2016) for details).
Taking a further step, on 29 May 2018, the MOF, SAT and Ministry of Science and Technology (MOST) jointly issued Cai Shui  No. 58 (“Circular 58”). This sets out preferential individual income tax (IIT) treatment for science and technology staff.
According to Circular 58, from 1 July 2018, special tax treatment applies to cash rewards received by scientific and technical staff who make significant contributions to R&D breakthroughs. Only 50% of the cash rewards will be taxed as wages and salaries. This means the remainder 50% of the cash rewards will be exempted from IIT. To enjoy the IIT incentive, Circular 58 also provides the following:
Circular 58 also clarifies that:
On 31 May 2018, the Customs Tariff Commission of the State Council issued Shui Wei Hui Announcement  No. 4 (“Circular 4”). This clarifies that, from 1 July 2018, import tariffs rates on certain daily consumer goods will be reduced. Prior to that, the Chinese government has reduced import tariffs rates on automobiles and auto parts on 22 May 2018 (see KPMG China Tax Weekly Update (Issue 21, May 2018) for details).
The reduction of import tariffs is in line with a keynote speech made by Chinese President Xi Jinping at the opening ceremony of the Boao Forum for Asia (BFA) Annual Conference on 10 April 2018. President Xi highlighted that, China will significantly reduce import tariffs for imported automobiles (currently 25%) in 2018. Reduction of import tariffs, at the same time, will also apply to certain imported products (such as foodstuffs, cosmetics, garments). China will increase imports to take account of consumer needs and seek faster progress towards joining the WTO Government Procurement Agreement (see KPMG China Tax Weekly Update (Issue 15, April 2018) for details).
According to Circular 4, most-favored-nation (MFN) tariff rates for 1449 imported consumer products will be reduced as follows:
On 17 May 2018, the SAT issued Announcement  No. 26 (“Announcement 26”). This sets out revised CIT annual/quarterly/monthly filing forms, to be used from 1 July 2018, with the following features.
Announcement 28 also clarifies that branches of the following enterprises must fill in the new CIT filing forms:
* Announcement 57 is an administrative measure to regulate CIT consolidated filing by enterprises that are doing business across the regions.