Economic stabilisation: Tax relief for companies during the Covid-19 epidemic

published on 18 February 2020 | reading time approx. 2 minutes

The State Administration of Taxation in China and local governments have announced a series of measures in an attempt to ensure the normal operation of the economy and reduce the negative impact on enterprises.

Special Tax Regulations

Value Added Tax (VAT)

 VAT exemption

• Incomes from transporting key protection and control equipment
• Incomes from providing public transportation services, daily-life services and courier delivery services for essential living materials
• Goods donations for epidemic prevention and control

​Refund of retained VAT at period-end

• The enterprises that produce key protection materials for epidemic prevention and control are eligible for a full refund of retained VAT at period-end.

​Corporate Income Tax (CIT)

Complete depreciation/complete deductibility on income tax

• Equipment purchased by enterprises to increase capacity to produce key protection materials for epidemic prevention and control.
• Cash and goods donated by enterprises for epidemic prevention and control to qualified social organisations or governments.
• Goods donated by enterprises directly to hospitals that are responsible for preventing and treating the virus.

Loss carried forward

• The carryforward period for losses incurred in 2020 by enterprises in industries significantly affected by the epidemic is extended from five to eight years.

​Individual Income Tax (IIT)

IIT exemption

• Goods distributed by the enterprises to individuals such as medicines, supplies and protective equipment etc. for preventing the epidemic. 

Deduction possibilities on the IIT

• Cash and goods donation by individuals for epidemic prevention and control to qualified social organizations or governments
• ​Goods donation by individuals directly to hospitals that are responsible for preventing and controlling the epidemic.

In general, the following points are to be noted regarding the above listed policies:

• Enterprises eligible for above tax preferences shall pay attention to keep the proofs and documents for later assessment, e.g. receipts and valid invoices of donation and equipment purchase.
• Upon using the above tax preferences and the general regulations simultaneously, attention should be paid to details that require the inspection of specific individual cases.

Local special regulations in Shanghai

Apart from the governmental tax preferential policies, small and medium-sized enterprises (SMEs) in Shanghai are supported by the municipal government additionally. 
 

Rental Exemption

• SMEs that are meeting certain criteria and are ren­ting business-operating properties in Shanghai from State-owned Enterprises will be exempted from paying rent for February and March 2020.

Financing Support

• Commercial banks are encouraged to grant more cre­dits to SMEs who are significantly affected by the epidemic. The general interest rate will be decreased by a quarter during the epidemic-controlling period.
• For those companies whose cash flow is strongly affected by the epidemic situation, loan-repayment period extension or repayment postponements can be granted.

Social Security

• Employers meeting certain criteria who carry out no/limi­ted redundancy in 2020 will be refunded 50 percent of the unemployment insurance actually contributed for 2019.
• The adjustment of annual social security calculation base will be postponed to July 2020, which is usually made in April. Since the annual adjustment would usually increase the calculation base, postponing it would also alleviate the burden on companies. The payment of regular social security contribution could also be postponed for companies strongly affected by the epidemic.
• ​From February to December 2020, the employer's contribution ratio of health insurance will be reduced by 0.5 per cent.

The above mentioned measures are aimed to alleviate the burden of enterprises and industries that are strong­ly affected by the epidemic. As the scope of the measures is currently strongly limited, we are assuming that the policies will continue to be specified and additional measures for relief will be announced.