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Policy Guide Published to Extend Coverage of Tax Preferences
SAT Releases the Guidelines on Preferential Tax Policies for Mass Entrepreneurship and Innovation

Issuance Date: April 26, 2017     Source: General Office of the State Administration of Taxation

Starting businesses and making innovations are the strong drivers for China's economic and social development. Since the 18th CPC National People's Congress, the government has greatly encouraged mass entrepreneurship and innovation, and tax has played a key role in this endeavor as a key lever of economic adjustment. The government encourages the implementation of preferential tax policies in favor of mass entrepreneurship and innovation and arouses market participants' enthusiasm for innovation, to boost mass entrepreneurship and innovation to be the new engine for China's economic growth. As of March 2017, the government had launched 77 preferential tax policies for the key links and areas of mass entrepreneurship and innovation, to facilitate mass entrepreneurship and innovation. How many measures have been launched? Which measure is fit for specific taxpayers? What should be borne in mind when implementing the measures? Tax authorities have recently released the Guidelines on Preferential Tax Policies for Mass Entrepreneurship and Innovation (hereinafter referred to as Guidelines) to enable start-ups and innovative taxpayers to better enjoy the dividends of tax policies.

Enable start-ups to understand tax policies

"Several of our executives are specialized in design, but they are busy in establishing business relationships and developing products every day, so much so that they have no time to study tax policies," said Mr. Liu from Guangzhou Gold Valley Films Co., Ltd. After graduating from university in 2010, Mr. Liu established a cultural firm with his classmates. At the very beginning, they were troubled by capital turnover, in addition to product development and market expansion. To save costs, Mr. Liu acted as owner and accountant, without any time to study tax policies. Until tax officials visited his firm and provided coaching, he enjoyed tax deduction and exemption that year. Since its founding, the firm has enjoyed tax deduction and exemption of more than RMB 80,000. "The annual tax reduction offsets most of our rentals, helping us through the predicament," said Mr. Liu with a smile.

This is not a rare case among start-ups. For lack of professional financial specialists to interpret tax policies, enterprises sometimes fail to enjoy the dividends of tax preferences they are eligible for. "A poor understanding of tax policies, and failure to enjoy preferential tax deduction and exemption are not the result of high barriers of tax policies, but the lack of intuitive channels to understand tax policies with ease," says Fan Yong, professor at Central University of Finance and Economics.

"Given the pain point that entrepreneurs are not familiar with taxes, we change the orientation of policy implementation and launched a policy guide to enable taxpayers to search for preferential tax policies on their own. To remove barriers against interpreting tax policies, tax authorities have recently released the Guidelines to help entrepreneurs understand the stage of development of their businesses and what tax preferences they are eligible for," said Luo Tianshu, deputy director of the Tax Policy and Regulation Department of the SAT.

Streamline and interpret policies from the perspective of enterprises

According to Liu Yi, director of the General Affairs Division of Tax Policy and Regulation Department of the SAT, documents have always been introduced from the perspective of policies, but this time, tax authorities change the perspective to enterprises to streamline and interpret the policies. Taxpayers can apply the policies based on their demand and actual situations.

The Guidelines covers every stage of development of enterprises. "The Guidelines contains 77 effective preferential tax policies, divided into three stages, namely, infancy, growth and expansion, to guide the development of enterprises," said Liu Yi. Given that start-ups are most concerned about tax burdens and loose business environment, the Guidelines' first part contains preferential tax policies for micro and small businesses and special groups that start businesses and seek employment, and introduces the tax preferences for innovation and entrepreneurship platforms that support company growth and venture capital investment enterprises and financial institutions. To provide tax preferences to enterprises in high-speed development, the Guidelines' second part introduces the preferential tax policies for income taxes, such as super-deduction of R&D expenses, accelerated depreciation of fixed assets, and pre-tax deduction for key industries. Given that more mature enterprises pay closer attention to the orientation of the government's macroeconomic control, the third part summarizes the preferential tax policies' support for every link of technological innovation, and to help innovation-driven enterprises to accelerate seizure of the technological high ground and motivate technical research institutions and technological staff to make innovations, so as to drive enterprises to prosper with pertinent measures.

Horizontally interpret preferential tax policies in an all-round way. In interpreting policies, the Guidelines makes analysis in terms of eligible entities, preferential measures, conditions for eligibility and policy basis. According to Liu Yi's example, an owner of a high-tech enterprise is looking for relevant preferential policy in the Guidelines and finds out that a high-tech enterprise specially supported by the government is eligible for preferential tax treatment, and if his/her enterprise meets 10 conditions such as winning recognition from the high-tech enterprise recognition management institution established jointly by the provincial technical and administrative authority, and financial and taxation authorities at the same level; and registered more than one year ago, the enterprise will be eligible for the tax preference of paying corporate income tax at a tax rate of 15%. The Guidelines sets forth all the matters in relation to preferential tax policies, making it easy to understand at a glance.

Focus on demand to make dividends fully accessible to taxpayers

In the past, enterprises depended on their professional financial staff to enjoy preferential tax policies, or by consulting a wide range of documents and materials. By comparison, the Guidelines functions like a region-specific supermarket, allowing enterprises to pick up goods on demand and gain access to the gift packs for tax cuts and burden reduction. "This Guidelines helps taxpayers to develop a thorough understanding of policies, widens the coverage of preferential tax policies and plays a stronger role in facilitating mass entrepreneurship and innovation," Hu Yijian, professor at Shanghai University of Finance and Economics, said after paging through the Guidelines.

Start-ups and innovative enterprises grow their businesses based on preferential tax policies. For micro and small enterprises, the major channel for entrepreneurship and employment and the powerhouse for economic development, the Guidelines introduces the preferential tax treatment such as exemption of VAT and half-payment of corporate income tax. Statistics show that micro and small enterprises recorded tax cuts of more than RMB 100 billion in 2015 and 2016 respectively, thanks to the preferential tax policies. This holds true for motivating technological innovations. In 2016, the preferential tax policies in favor of innovation contributed to tax cuts of RMB 80 billion, helping enterprises to accelerate transformation and upgrading. 25,000 high-tech enterprises were added and high-tech manufacturing's added value grew by 10.8% throughout the year.

"Tax authorities will also complement and refine the Guidelines based on the newly introduced preferential tax policies, and will launch guides on preferential tax policies for education, healthcare, old-age care and manufacturing. Bearing in mind taxpayers' demand, tax authorities will guide taxpayers to fully enjoy the dividends of tax policies," said Luo Tianshu.

Xu Zhengzhong, professor at Chinese Academy of Governance, says that the Guidelines is an effective measure to enhance the precision of policy implementation and improve the quality of taxpayer services. The Guidelines will help start-ups and innovative enterprises to reduce the costs for tax processing, optimize business environment, and facilitate the new round of breakthroughs in China's economic development.

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