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China Tax & Investment Express(CTIE)* brings you the latest taxand business announcements ona weekly basis. CTIE provides asynopsis of each announcementincluding a link that leads you tothe full content of theannouncement (in Chinese).Please feel free to contact yourEY client service professionalsfor further assistance if you findthe announcements have animpact on your businessoperations.

CTIE does not replace our ChinaTax & Investment News* whichwill continue to be prepared anddistributed to provide more in-depth analyses of tax andbusiness developments in China.*If you wish to access the previousissues of CTIE and China Tax &Investment News, please contact us.

Tax circulars

► Public notice (PN) regarding the launch of Administrative Measureson vouchers for Corporate Income Tax (CIT) deduction purposes (SATPN [2018] No. 28)

Synopsis

According to the CIT Law of the People’s Republic of China (PRC) and itsimplementation rules as well as the prevailing tax laws and regulations,the State Administration of Taxation (SAT) released SAT PN [2018] No.28 on 6 June 2018 to launch Administrative Measures on vouchers forCIT deduction purposes (hereinafter referred to as the “AdministrativeMeasures”).

The Administrative Measures shall apply to both resident and non-resident enterprises (hereinafter referred to as “enterprises”) asprescribed by the CIT Law and its implementation rules for their vouchersfor CIT deduction purposes. The vouchers include various types ofdocuments and certifications that can be used to substantiate actualexpenses that were reasonably incurred by taxpayers for generating theirincome and deducted for the calculation of CIT.

Issue No. 201802422 June 2018


Key features of PN 28 are as follows:

General conditions of vouchers for CIT deduction purposes

There are three general conditions of the vouchers for CIT deduction purposes:

► Authenticity, which means that the business transactions behind the vouchers should be authentic andsupport expenses that are actually incurred and paid for.

► Legality, which means the forms and sources for the vouchers should be in accordance with the laws andregulations of the PRC.

► Relevance, which means that the vouchers and the expenses reflected by the vouchers are relevant andjustifiable.

Enterprises should obtain vouchers by the annual CIT filing deadline for the current year to substantiate theirCIT deduction.

Internal and external vouchers

Vouchers are categorized as internal and external vouchers according to their source:

► Internal vouchers refer to the original accounting vouchers made available by enterprises to record theircosts, expenses, losses and other expenditures. Internal vouchers should be filled in and used according tothe laws and regulations related to accounting.

► External vouchers refer to vouchers obtained from other entities or individuals to support the payments ofexpenses during business activities or other activities, including but not limited to tax invoices (i.e., papertax invoices and electronic tax invoices), financial receipts (财政票据), tax payment certificates,receipts/invoices issued by the sellers and split invoices, etc.

Eligible vouchers for CIT deduction

Expenses incurred for purchasing Value-added Tax (VAT) taxable goods/activities within the PRC

► Where the payments are made to VAT taxpayers who completed tax registrations, these expenses shouldbe substantiated by proper VAT invoices (including VAT invoices issued by the tax authorities on behalf ofthe VAT taxpayers).

► Where the payments are made to entities that are not required to do tax registrations according to the taxrules and regulations, or the payments are made to individuals that conduct VAT taxable activitiesoccasionally with the VAT taxable income not exceeding the VAT threshold, these expenses should besubstantiated by proper VAT invoices issued by the tax authorities on behalf of the recipient, receipts, orinternal vouchers. Among these, the receipts should be stated with the relevant information, such as titleof the recipient, name of the individual, his/her ID number, descriptions and amount of the payment.

Expenses incurred for purchasing non-VAT taxable goods/activities within the PRC

► Where the payments are made to entities, these expenses should be substantiated by external vouchers(excluding tax invoices);

► Where the payments are made to individuals, these expenses should be substantiated by internal vouchers.

► However, in case the taxpayers generating such income for non-VAT taxable goods/activities are allowedto issue tax invoices according to the SAT’s ruling, such tax invoices shall be the proper vouchers tosubstantiate these expenses.


Expenses paid to overseas

► Where enterprises have incurred expenses for purchase of goods or services from overseas, theseexpenses should be substantiated by invoices/receipts issued by the overseas sellers/service providers andthe respective tax payment certificates.

Relevant supporting documents such as agreements, payment basis, and payment vouchers should also bemaintained properly to substantiate the authenticity of the transactions.

Invalid vouchers

The following vouchers are considered invalid and should not be used for CIT deduction purposes:

► Tax invoices that were printed by enterprises without proper authorization

► Tax invoices which were forged, altered, superseded

► Tax invoices which were obtained by the issuer illegally

► Tax invoices issued without business substances or the contents of the invoices were not completedaccording to the prevailing rules

► Other external vouchers which do not accord with the prevailing laws and regulations

Remedial measures

Where enterprises failed to obtain tax invoices or other external vouchers to substantiate their expenses orobtained improper vouchers/tax invoices, the following remedial measures may apply:

Before the deadline of the annual CIT filing

► Where the improper tax invoices or other external vouchers were replaced or reissued with proper taxinvoices/external vouchers, the relevant expenses can be deducted for CIT purposes.

► Where the entities that issued improper tax invoices or other external vouchers are unable to reissueproper tax invoices as they are liquidated, revoked, got their business licenses confiscated or identified asabnormal taxpayers, the relevant expenses may be substantiated by other relevant documents asprescribed in PN 28 if such documents can prove the authenticity of the expenses.

► Where the enterprises fail to obtain proper tax invoices or other external vouchers and the relevantexpenses cannot be substantiated by other relevant documents, such expenses shall be disallowed for CITdeduction purposes.

After the deadline of the annual CIT filing

► Where the enterprises failed to obtain proper tax invoices or other external vouchers within the prescribedtimeframe due to certain reasons, or obtained improper tax invoices/external vouchers, and the enterprisehave not deduct the relevant expenses in the current year, they may still claim such expenses when theyobtain proper tax invoices/external vouchers within five years. The CIT deduction shall be carried back tothe year the expenses incurred.

► Where the enterprises are found claiming CIT deductions with improper tax invoices/external vouchers orwithout tax invoices/external vouchers recognized by tax authorities, the tax authorities shall order theenterprises to obtain proper tax invoices/other external vouchers within 60 days. If the enterprises obtainproper tax invoices/external vouchers within the given timeframe, such expenses may still be CITdeductible for the current year. Otherwise, such expenses shall be disallowed and cannot be carried backeven if proper tax invoices/external vouchers are obtained in the following years.


Vouchers related to cost-sharing arrangements

► Where an enterprise (primary buyer), another enterprise (may be a related party of the first mentionedenterprise) and/or an individual (hereinafter referred to as the “buyers”) jointly accept a VAT taxableservice within the PRC, and the payment is split between the purchasers in accordance with the arms-length principle, the primary buyer should claim the CIT deduction with the tax invoices and a split invoice(which shows the amount of expenses allocated to each buyer), while the other enterprise involved shouldclaim the CIT deduction with the split invoice issued by the primary buyer.

► Where an enterprise (primary buyer), another enterprise and/or an individual (hereinafter referred to asthe “buyers”) jointly accept a non-VAT taxable service within the PRC, and the payment should be splitbetween purchasers in accordance with an arm’s-length principle, the primary buyer should claim the CITdeduction with the other external vouchers and a split invoice, while the other enterprise involved shouldclaim the CIT deduction with the split invoice issued by the primary buyer.

PN 23 shall become effective on 1 July 2018.

Our observations

The issuance of PN 23 aims to specify the relevant concepts, types and criteria related to the vouchers for CITdeduction purposes. Among these, there are some new practices to be enforced as prescribed in PN 23 whichare worth-noting:

► Other than tax invoices, PN 23 prescribes that slip invoices, internal vouchers, etc. can also be used asvouchers to substantiate the expenses for CIT deduction purposes.

► Where enterprises fail to obtain proper vouchers to substantiate the expenses for CIT deduction purposes,further measures may still be applied by the enterprises as remedy. For instance, when an enterpriseobtains proper vouchers for expenses that have not been claimed in the year the expenses incurred (withinthe prescribed time frame), the enterprise is allowed to claim CIT deduction back in the year the expensesincurred. However, it was not specified in PN 23 that the actual process for carrying back CIT deduction.From a practical perspective, the process should include filing amended annual CIT returns for that year, butas the amount of profit/loss before tax for the year shall be altered due to the deduction of the expenses,the utilization of loss for the current or following years may also be altered. In addition, it remains unclearwhether the filing of amended annual CIT returns for previous year shall be subject to tax authorities’administrative approval.

We have issued a WeChat news article on 19 June 2018 (in Chinese only) regarding PN 23, you can follow us onWeChat by scanning the QR Code on the last page of this CTIE and click on “View History” to assess the fullcontents of the WeChat news article. For further developments in this regards, please stay tuned.Remedial measures

You can click this link to access the full content of PN 23:http://www.chinatax.gov.cn/n810341/n810755/c3501702/content.html

You can click this link to access the full content of SAT’s official interpretation on PN 23:http://www.chinatax.gov.cn/n810341/n810760/c3501663/content.html

► PN regarding certain matters related to new taxpayers’ initial applications for VAT invoices (SAT PN[2018] No. 29）

Synopsis

On 11 June 2018, the SAT released SAT PN [2018] No. 29 (“PN 29”) to specify certain matters related newtaxpayers’ initial applications for VAT invoices.


According to PN 29, new taxpayers’ initial applications for VAT invoices, which include the determination forthe types of VAT invoices, approval for the limit of VAT invoice issuance, initial issuance of VAT control systemand the collection of VAT invoices, shall be accepted and completed within two working days if all of thefollowing conditions are met (for certain areas, the applications shall be completed immediately uponacceptance of the applications):

► The tax staffs, legal representatives of the new taxpayers have completed information and verification oftheir identities with the supervising tax authorities.

► The taxpayers apply for VAT invoices for their business needs.

► The taxpayers have completed the required steps for obtaining tax control systems.

Tax authorities shall complete the applications for qualifying taxpayers based on the following standards：

► The limit for the issuance of special VAT invoices for new taxpayers should not exceed RMB100,000, andeach taxpayer should not apply to have more than 25 sets of special VAT invoices per month.

► The limit for the issuance of normal VAT invoices for new taxpayers should not exceed RMB100,000, andeach taxpayer should not apply to have more than 50 sets of normal VAT invoices per month

PN 29 shall become effective on 1 August 2018, except for Xinjiang, QingHai and Tibet where PN 29 shall beimplemented on 1 October 2018. Taxpayers should stay alert to further notices to be released by theirsupervising tax authorities.


You can click this link to access the full content of the Interpretation of PN 29 from the SAT:http://www.chinatax.gov.cn/n810341/n810760/c3504299/content.html

► PN regarding matters related to the reform of organizational structure of taxation system (SAT PublicNotice [2018] No. 32)

► Notice regarding tax collection and administration during the transition period of taxation system reform(Shuizongfa [2018] No. 68)

Synopsis

On 17 March 2018, the Standing Committee of the National People’s Congress released a Decision on theReform of the Organizational Structure of the State Council (hereinafter referred to as the “Decision”).Accordingly, the Central Committee of the Communist Party of China released a Plan on Deepening Reform ofParty and State Institutions (hereinafter referred to as the “Plan”) on 21 March 2018. According to theDecision and the Plan, China will launch the reform of organizational structure of taxation system, aiming tomerge the state and local tax authorities at the provincial and lower levels. After the merger, the newlyestablished tax authorities (hereinafter referred to as “new tax authorities”) shall be responsible for thecollection of taxes and social insurance such as basic pension insurance, basic medical insurance,unemployment insurance, etc. within their jurisdictions. (Please refer to CTIE2018012 for details of theDecision and Plan.)

To ensure the orderly progress in the taxation system reform and better server taxpayers, on 15 June 2018and 12 June 2018, the SAT released two circulars, i.e., SAT PN [2018] No. 32 (“PN 32”) and Shuizongfa[2018] No. 68 (“Circular 68”), clarifying issues related to tax collection and administration during thetransition period of the taxation system reform.

According to PN 32 and Circular 68, after the establishment of new tax authorities, the following matters shallbe dealt with:


► New administrative and business related seals shall be launched, and work shall be carried out under thename of the new tax authorities.

► Functions and duties of the original state and local tax bureaus with respect to tax/surcharge collectionand administration shall be taken up by the new tax authorities that continue to exercise these functionsand duties.

► Matters which have not been settled shall be handled by the new tax authorities which continue to exercisethe relevant authority.

► The administrative decisions previously made, law enforcement documents issued and agreements enteredinto shall still remain valid.

► The validity of the relevant documents, qualifications and certificates previously obtained by taxpayers,withholding agents and other administrative counterparts remain unchanged.

► Where a taxpayer is dissatisfied with any of the administrative acts of the new tax authority, the taxpayermay apply for administrative reconsideration with the superior tax authority

► Tax matters may be handled in one go by taxpayers in the comprehensive tax service halls or via the onlinetaxation system.

► Taxpayers and withholding agents will only need to submit “a set of materials” or apply only once for therelevant tax matters to the new tax authorities, which is to say, duplicated submissions/applications will beavoided

PN 32 and Circular 68 also provide clarifications on transitional arrangements for taxation matters such as theuse of various forms and certificates, announcement on tax arrears, tax risk management, handling of taxaudit cases that have not been settled, law enforcement standard and administration of taxinvoices/certificates, etc. In addition, Circular 68 provides detailed provisions for better serving taxpayers.

To ensure compliance, taxpayers, withholding agents and the relevant parties are recommended to read PN 32and Circular 68 carefully and pay attention closely to local developments in this regard.


You can click this link to access the full content of Circular 68:http://www.chinatax.gov.cn/n810341/n810755/c3518481/content.html

You can click this link to access the full content of the Decision:http://www.npc.gov.cn/npc/xinwen/2018-03/17/content_2049996.htm

You can click this link to access the full content of the Plan:http://www.gov.cn/zhengce/2018-03/21/content_5276191.htm#allContent


► PN regarding the effectiveness and enforcement of the protocol amending the “Agreement between theGovernment of the PRC and the Government of the Kingdom of Sweden for the Avoidance of DoubleTaxation and the Prevention of Fiscal Evasion with respect to Taxes on Income” (SAT PN [2018] No. 27)

Synopsis

On 5 June 2018, the SAT released SAT PN [2018] No. 27 (“PN 27”) to announce the effectiveness andenforcement of the Protocol (hereinafter referred to as the “New Protocol”) amending the “Agreementbetween the Government of the PRC and the Government of the Kingdom of Sweden (Sweden) for theAvoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income” signed in1986 (hereinafter referred to as the “PRC-Sweden DTA”) and its protocol signed in 1999 (hereinafter referredto as the “1999 Protocol”). The New Protocol was signed on 5 June 2017 and became effective on 4 April2018 and applies to tax matters occurred on or after 1 June 2016.

According to the New Protocol, revenue derived from a Contracting State by an enterprise of the otherContracting State from the operation of ships or aircraft in international traffic shall be exempt from any tax inthe first-mentioned State. In this regard, revenue derived from the PRC by an enterprise of Sweden from theoperation of ships or aircraft in international traffic shall be exempt from any tax in the PRC, and vice-versa.


You can click this link to access the full content of SAT’s official interpretation on PN 27:http://www.chinatax.gov.cn/n810341/n810760/c3499396/content.html

You can click this link to access the full content of the PRC-Sweden DTA, 1999 Protocol and the New Protocol:http://www.chinatax.gov.cn/n810341/n810770/c1153151/content.html

► Notice regarding certain matters related to administration of domestic securities investments by RMBQualified Foreign Institutional Investors (RQFIIs) (Yinfa [2018] No. 157)

► Notice regarding the “Foreign Exchange Administrative Regulations for Domestic Securities Investmentsby Qualified Foreign Institutional Investors (QFIIs)” (SAFE PN [2018] No. 1)

Synopsis

To regulate the administration of domestic securities investments by RMB Qualified Foreign InstitutionalInvestors (RQFIIs), the People’s Bank of China and the State Administration of Foreign Exchange (SAFE) jointlyreleased Yinfa [2018] No. 157 (“Circular 157”, i.e., Notice regarding certain matters related to administrationof domestic securities investments by RQFIIs) on 12 June 2018 according to the “Trial Measures on DomesticSecurities Investments with RMB by QFIIs” (“Order 90”) which was released in 2013.

Circular 157 supersedes Yinfa [2016] No. 227 (“Circular 227”), the prevailing circular regarding the RQFIIadministration, which was released in 2016. Circular 157 clarifies certain matters of investment quota,accounts supervision, record filing, administrative approval, trading rules and etc. including totally twenty-fourarticles. Comparing with Circular 227 (please refer to CTIE2016036 for details of Circular 227), maindifferences contained in Circular 157 that need to be noted include:

Business circulars


As a usual practice, after both Contracting Parties exchange diplomatic notes indicating that they havecompleted the internal legal procedures necessary for the entry into force of the PRC-Japan Agreement, theGeneral Office of the Ministry of Human Resources and Social Security of the PRC shall release a circular to

Items Circular 227 Circular 157

Transfer offunds

► Without approval, funds may not betransferred between an RQFII’s specialdeposit account and its other domesticaccounts;

► Without approval, funds may not betransferred among RQFII’s accounts forown funds, clients’ funds and open-ended funds.

► Funds may be transferred between RQFII’sspecial deposit accounts (securitiestransactions) opened under the same productor funds (own funds, clients’ funds or open-ended funds).

Investmentprincipal lock-up period

► An RQFII is prohibited from remittingthe principal abroad within threemonths from the date when the RQFII’scumulated investment principal inflowreaches RMB 100 million.

► The investment principal lock-up period ofthree months is cancelled and RQFIIs mayappoint trustees to remit the principal abroadas needed anytime.

Foreignexchangehedging

N/A ► RQFIIs are allowed to carry out foreignexchange hedging on domestic investments tohedge exchange rate risks, i.e., RQFIIs maycarry out foreign exchange derivativesbusiness through foreign exchange derivativesbusiness agencies. Foreign exchangederivatives business agencies handling theforeign exchange derivatives business forRQFIIs shall be abided by the principle of realneeds trading. The scope of expenditure forspecial deposit accounts includes fundstransferred to special deposit accounts(derivatives transactions). The positions offoreign exchange derivatives held by RQFIIshall not exceed total RMB assets of domesticsecurities investments that are escrowed bythe trustees at the end of last month.

Liquidation

N/A ► Where an RQFII is to be liquidated (includingproduct liquidation), the trustee may proceedfunds remittance and account close withrelevant supporting documents (e.g., a writtenapplication or directive by the RQFII, a specialaudit report on investment income issued by aChinese Certified Public Accountant, a taxpayment or a tax record filing certificate).

Informationsubmission

► Trustees shall transmit variousinformation of the RQFIIs (e.g., bankaccount opening and closure,investment quotas, cross-border fundsreceipt and payment) through theinformation management system forRMB cross-border receipt and paymentwithin 5 working days.

► Trustees shall, in accordance with the relevantregulations, submit RQFIIs’ bank accountopening and closing information, investmentquotas, cross-border funds receipt andpayment information and information ofdomestic securities investment assets throughthe information management system for RMBcross-border receipt and payment.


Circular 157 became effective from the date of promulgation, i.e., 12 June 2018. Circular 227 shall beabolished at the meantime. In case of any conflicts between Circular 157 and other relevant rules, Circular157 shall prevail.

Apart from Circular 157, on 10 June 2018, the SAFE released SAFE PN [2018] No.1 (hereinafter referred toas “PN 1 [2018]”), i.e., the “Foreign Exchange Administrative Regulations for Domestic Securities Investmentsby QFII” to regulate domestic securities investments by QFIIs in accordance with the “AdministrativeRegulations of the PRC on Foreign Exchange” and relevant regulations.

Before PN 1 [2018], the previous regulation for the domestic securities investments by QFIIs was SAFE PN[2016] No. 1 (hereinafter referred to as “PN 1 [2016])” which was released by the SAFE in 2016 (please referto CTIE2016006 for details of PN 1 [2016]). Comparing the two circulars, main changes are as follows:

PN 1 [2018] became effective from the date of promulgation, i.e., 10 June 2018. PN 1 [2016] shall beabolished at the meantime. In case of any conflicts between PN 1 [2018] and other relevant rules, PN 1 [2018]shall prevail.

Items PN 1 [2016] PN 1 [2018]

Fundremittancelimit

► QFIIs can make outbound remittance ofrelevant investment principal andearnings in installments upon expiry ofthe lock-up period.

► Accumulated net outflow of funds permonth shall not exceed 20% of QFII’stotal domestic assets of the previousyear end.

► QFIIs may appoint trustees to handle therelevant remittance of the principal andproceeds.

► The monthly limit of 20% of total domesticassets at the end of last year is cancelled.

Investmentprincipal lock-up period

► The lock-up period for a QFII’sinvestment principal shall be threemonths, calculated from the date whena QFII’s accumulated investmentprincipal inflow reaches USD20 million.

► The three months lock-up period is cancelled,which means QFIIs may appoint trustees toremit the principal abroad as needed anytime.

Foreignexchangehedging

N/A ► To hedge the foreign exchange risk arisingfrom its domestic securities investments, QFIIsmay carry out foreign exchange derivativesbusiness through foreign exchange derivativesbusiness agencies. Foreign exchangederivatives business agencies handling theforeign exchange derivatives business for QFIIsshall be abided by the principle of real needstrading.

Liquidation

N/A ► Where a QFII is to be liquidated (includingproduct liquidation), the trustee may proceedfunds remittance and account close with therelevant supporting documents (e.g., a writtenapplication or directive by the QFII, a specialaudit report on investment income issued by aChinese Certified Public Accountant, a taxpayment or a tax record filing certificate).


You can click this link to access the full content of Circular 157:http://www.safe.gov.cn/wps/portal/!ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gPZxdnX293QwML7zALA09P02Bnr1BvI2c_E_1wkA6zeGd3Rw8Tcx8DAwsTdwMDTxMnfz8P50BDA09jiLwBDuBooO_nkZ-bql-QnZ3m6KioCACk6Xh-/dl3/d3/L2dJQSEvUUt3QS9ZQnZ3LzZfSENEQ01LRzEwODRJQzBJSUpRRUpKSDEySTI!/?WCM_GLOBAL_CONTEXT=/wps/wcm/connect/safe_web_store/safe_web/zcfg/zbxmwhgl/jwrzyyjzjgl/node_zcfg_zbxm_kjzwtz_store/c3584d8045dbbe979f5cbfa23da34fd5

You can click this link to access the full content of Circular 227:http://www.safe.gov.cn/wps/portal/!ut/p/c5/hc1BDoIwFATQs3iCDlhLWbZF21pFCBGRDenCEBIBF8bzW-Ja_bN8mfmkJSGTfw29fw7z5O-kIS3rKFBxGQnobUZhizKVZpdGsEnwK-uUFoYmB4BTDVgqT7lRZfD1n_Zl-cc6ozJ1dDoCdzWHtZtK7c8ujl3y8V_7i-PLCZDczOONPMYGQ9Gv3qmCsZM!/dl3/d3/L2dJQSEvUUt3QS9ZQnZ3LzZfSENEQ01LRzEwODRJQzBJSUpRRUpKSDEySTI!/?WCM_GLOBAL_CONTEXT=/wps/wcm/connect/safe_web_store/safe_web/zcfg/zbxmwhgl/jwrzyyjzjgl/node_zcfg_zbxm_kjzwtz_store/066884804e1f9eb59398f3cdfa8ffa68

You can click this link to access the full content of PN 1 (2018):http://www.safe.gov.cn/wps/portal/!ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gPZxdnX293QwML7zALA09P02Bnr1BvI2c_E_1wkA6zeGd3Rw8Tcx8DAwsTdwMDTxMnfz8P50BDA09jiLwBDuBooO_nkZ-bql-QnZ3m6KioCACk6Xh-/dl3/d3/L2dJQSEvUUt3QS9ZQnZ3LzZfSENEQ01LRzEwODRJQzBJSUpRRUpKSDEySTI!/?WCM_GLOBAL_CONTEXT=/wps/wcm/connect/safe_web_store/safe_web/zcfg/zbxmwhgl/jwrzyyjzjgl/node_zcfg_zbxm_kjzwtz_store/ae469a8045dbbbc99f41bfa23da34fd5

You can click this link to access the full content of PN 1(2016):http://www.safe.gov.cn/wps/portal/!ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gPZxdnX293QwMLE09nA09Pr0BXLy8PQyNPI6B8pFm8s7ujh4m5jwFQ3t3AwNPEyd_PwznQ0MDTmIDucJB9-PWD5A1wAEcDfT-P_NxU_YLcCIMsE0dFABRy5RE!/dl3/d3/L0lDU0lKSWdra0EhIS9JTlJBQUlpQ2dBek15cUEhL1lCSlAxTkMxTktfMjd3ISEvN19IQ0RDTUtHMTA4VTVDMElBVTNDTTc3MzBTNQ!!/?PC_7_HCDCMKG108U5C0IAU3CM7730S5000000_WCM_CONTEXT=/wps/wcm/connect/safe_web_store/safe_web/zcfg/zbxmwhgl/jwrzyyjzjgl/node_zcfg_zbxm_kjzwtz_store/fd4a9a804b8ed99bbfb2ff196274af30

► Notice regarding the approval on deepening the innovative development of service trade in pilot areas(Guohan [2018] No. 79)

Synopsis

To promote the transformation of foreign trade and supply-side reform, China launched a 2-year program oninnovative development of service trade in certain pilot areas since 22 February 2016 to explore themanagement system of service trade, innovative service trade development mode, service trade facilitation,etc. At the State Council Meeting on 23 May 20181, Premier Li Keqiang called for deepened innovation in theservice trade sector to propel the high-quality economic development. (Please refer to CTIE2016008 fordetails of the 2-year program.)

On 1 June 2018, the State Council released a reply via Guohan [2018] No. 79 (“Circular 79”) to the Ministry ofCommerce (MOFCOM) and the relevant local governments regarding the approval on launching a pilot programfor deepening the innovative development of trade in the service sector (hereinafter referred to as the “PilotPlan”) in Beijing, Tianjin, Shanghai, Hainan, Shenzhen, Harbin, Nanjing, Hangzhou, Wuhan, Guangzhou,Chengdu, Suzhou, Weihai, as well as Hebei Xiong’an New Area, Chongqing Liangjiang New Area, GuizhouGui’an New Area and Shanxi Xixian New Area (hereinafter referred to as the “Pilot Areas”). The Pilot Programwill last for two years, from 1 July 2018 to 30 June 2020.

The Pilot Plan outlines the following eight tasks for promoting innovative development of service trade:

► To further improve the management system

► To further expand the opening-up of the service sector

► To further cultivate the market entities

► To further innovate the development mode


► To further improve the level of facilitation

► To further improve the policy system

► To further improve the statistical system

► To further innovate the regulatory mode

According to Circular 79, a series of measures will be launched in the Pilot Areas to promote the opening-up ofservice trade sector, covering finance, telecommunication, tourism, engineering consultation as well as legalservices. In addition, it is worth noting that with respect to improvement in policy system from a taxperspective, policies shall be formulated to grant tax exemption for exports of services and qualifying servicesshall be subject to zero Value-added Tax rate.

To ensure the smooth implementation of the Pilot Plan, Circular 79 puts forward a list of 34 supporting policiesfrom various aspects, among which, tax-related ones mainly include:

► Expand the preferential CIT policies related to Technology Advanced Service Companies in pilot areas forinnovative development of service trade on a nationwide basis (such policy has already been put in placevia Caishui [2018] No. 44, “Circular 44”. Please refer to CTIE2018022 for details of Circular 44.）

► Implement tax policies on overseas-sourced income to support the export of emerging services

► Improve income tax policies for service-oriented enterprises in Pilot Areas

It is expected that the relevant government authorities shall soon release implementation rules in this regard.Please stay tuned and we will bring you the most updated news.

1 http://www.gov.cn/premier/2018-05/23/content_5293036.htm

You can click this link to access the full content of Circular 79:http://www.gov.cn/zhengce/content/2018-06/08/content_5297239.htm

You can click this link to access the full content of Circular 44:http://www.mof.gov.cn/mofhome/shuizhengsi/zhengwuxinxi/zhengcefabu/201805/t20180528_2910281.html

► Decision on the amendments to certain tax regulations (SAT Order [2018] No. 44)http://www.chinatax.gov.cn/n810341/n810755/c3518520/content.html

► PN regarding the amendments to some tax-related regulatory documents (SAT PN [2018] No. 31)http://www.chinatax.gov.cn/n810341/n810755/c3518540/content.html

► PN regarding catalogs of invalidated/abolished tax-related regulatory documents andinvalidated/abolished articles of certain tax-related regulatory documents (SAT PN [2018] No. 33)http://www.chinatax.gov.cn/n810341/n810755/c3518493/content.html

► Notice regarding the public opinion consultation on the “Decision on the Amendments to ‘ProvisionalAdministrative Measures on Record Filing for Establishment/Alteration of Foreign InvestmentEnterprises’ (Discussion Draft)http://www.chinalaw.gov.cn/art/2018/6/8/art_33_208440.html

► PN regarding the implementation measures of the General Administration of Customs for 2018 work planon public disclosure of governmental affairs (Shubanfa [2018] No. 27)http://gkml.customs.gov.cn/tabid/1033/ctl/InfoDetail/InfoID/31372/mid/445/Default.aspx?ContainerSrc=%5bG%5dContainers%2f_default%2fNo+Container

Other tax, business and customs related circulars recently announced by centralgovernment authorities:


Contact usFor more information, please contact your usual EY contact or one of the following of EY’s China tax leaders.

• Martin Ngai (Beijing)+86 10 5815 [email protected]

• Fisher Tian (Tianjin)+86 22 5819 [email protected]

Office Tax Leaders

• Samuel Yan (Dalian/Shenyang)+86 10 5815 [email protected]

Service Line Tax Leaders

• Travis Qiu (Transfer Pricing)+86 21 2228 [email protected]

• Paul Wen (People AdvisoryServices)+852 2629 [email protected]

• Samuel Yan (Global Compliance& Reporting)+86 10 5815 [email protected]

• Becky Lai (Tax Policy)+852 2629 [email protected]

• Jesse Lv (Transaction Tax)+86 21 2228 [email protected]

• Jane Hui+852 2629 [email protected]

Author – China Tax Center

Greater China Tax Leader

• Lucy Wang (Qingdao)+86 10 5815 [email protected]

• Vickie Tan (Shanghai)+86 21 2228 [email protected]

• Audrie Xia (Suzhou)+86 21 2228 [email protected]

• Raymond Zhu (Wuhan)+86 21 2228 [email protected]

• Jean Li (Xiamen)+86 755 2238 [email protected]

• Rio Chan (Guangzhou/Changsha)+86 20 2881 [email protected]

• Chuan Shi (Chengdu)+86 21 2228 [email protected]

• Clement Yuen (Shenzhen)+86 755 2502 [email protected]

• Joanne Su (Xi’an)+86 10 5815 [email protected]

• Patricia Xia (Hangzhou)+86 21 2228 [email protected]

• Andrew Chen (Nanjing)+86 21 2228 [email protected]

• David Chan (Hong Kong)+852 2629 [email protected]

• Heidi Liu (Taipei)+886 2275 [email protected]

• Kenneth Leung (Indirect Tax)+86 10 5815 [email protected]

Sector Leaders

• Catherine Li (Financial Services)+86 10 5815 [email protected]

• Alan Lan (Energy & Resources)+86 10 5815 [email protected]

• Martin Ngai (Technology, Media,Telecommunications)+86 10 5815 [email protected]

• Vickie Tan (Life Science)+86 21 2228 [email protected]

• Gary Chan (Real Estate)+86 10 5815 [email protected]

• Audrie Xia (ConsumerProducts)+86 21 2228 [email protected]

• Walter Tong (Automotive &Transportation)+86 21 2228 [email protected]

• Raymond Zhu (Government &Public Sector)+86 21 2228 [email protected]

• Henry Chan+86 10 5815 [email protected]

• Andrew Choy (International Tax)+86 10 5815 [email protected]


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