Xiamen city is one of China's first four Special Economic Zones, and has been granted the right to manage its own economic affairs while offering preferential investment policies to foreign enterprises.
• Corporate income tax
Foreign-funded enterprises: a reduced tax rate of 20% of corporate income shall be applicable for small-size and low-profit enterprises; a reduced tax rate of 15% of corporate income shall be applicable for hi-tech enterprises that demand key supports from the state.
•Two-year full exemption and three-year half exemption of taxes
For the hi-tech enterprises that are registered within any special economic zone on and after January 1, 2008 and demand key supports from the government (hereinafter referred to as newly-established hi-tech enterprises), the corporate income taxes shall be fully exempted for the revenues acquired from special economic zones and Shanghai Pudong New Area for the first two years starting from the year when the first operating income acquired is taxable. For the subsequent three years, the corporate income taxes payable on such revenues shall be half exempted based on the statutory rate of 25%.
•Three-year full exemption and three-year half exemption of taxes
Three-year full exemption and three-year half exemption of taxes
Investment and operating incomes of public infrastructure projects that receive key governmental supports: the corporate income taxes shall be fully exempted for the first three years starting from the year when the first operating income acquired is taxable. For the subsequent three years, the corporate income taxes payable on such revenues shall be half exempted.
Incomes of eligible environment protection, energy-saving and water-saving projects: the corporate income taxes shall be fully exempted for the first three years starting from the year when the first operating income acquired is taxable. For the subsequent three years, the corporate income taxes payable on such revenues shall be half exempted.
The expenses that a company spends on the R&D of new technologies, new products and new techniques and haven’t been included into the current profits and losses as intangible assets shall be increased by 50% before they are deducted from the taxable incomes. Where such expenses have become intangible assets, the amortization shall be done at 150% of the costs of intangible assets.
For any venture capital enterprise’s investments in any industry in which investments are preferentially supported and encouraged by the statel, the taxable incomes shall be deducted in a certain proportion to such investments.
For any foreign investment projects that are encouraged in the Catalogue for the Guidance of Foreign Investment Industries, all the imported equipment required by the project and for the purpose of self use and the technologies and reasonable quantity of accessory and spare parts that are imported together with the equipment according to the project contract shall be exempted of customs duties except for the commodities as specified in the Catalogue of Non-Duty-Free Commodities to be Imported for Foreign-funded Projects.
Industrial Support Policies (Service Outsourcing)
•Preferential policies (partial) applicable for “China’s demonstration city for the development of service outsourcing industry”
In February 2010, the State Council approved Xiamen as “China’s demonstration city for the development of service outsourcing industry”
Business tax: business taxes are exempted for offshore service outsourcing revenues
Income tax: a corporate income tax rate
of 15% shall be applicable for technically-advanced service outsourcing enterprises. Staff educational expenses (actual) may be deducted from the taxable revenues within a limit of 8% of total salaries.
Talent training: for eligible service outsourcing enterprises, a central governmental subsidy not over RMB 4,500 Yuan shall be given for the trainings of any new employee with an associate or higher degree provided that a labor contract be signed for an employment period of over 1 year. For eligible service outsourcing training organs, a subsidy not over RMB 500 Yuan shall be given for the trainings of any trainee who is expected to engage in service outsourcing businesses.
Call center: the restriction on the proportion of foreign investments may be exempted for any call center business where the final service customers and the principal are both located outside the Chinese mainland market.
Customs clearance: service outsourcing enterprises are subject to bonded supervisions.
•Preferential policies (partial) applicable for service outsourcing enterprises of Xiamen
Talent training: Xiamen Government allocates certain funds in a proportion of at least 1:1 for the trainings of service outsourcing enterprises’ staffs.
House rental subsidy: where any service outsourcing enterprise that is established in Xiamen has an annual revenue of RMB 5 million Yuan or more, a rental subsidy of RMB 16 Yuan/square meter/month shall be provided for its office premises leased in the Software Park for the purpose of service outsourcing businesses provided that the subsidy period shall not exceed two years and the subsidized office area shall not exceed 1,000 square meters. Any famous overseas software and information service enterprise and R&D organ that set up their headquarters, regional headquarters or R&D center in Xiamen for the first time shall be rewarded with 50% the actual rentals of their office premises leased in the Software Park in the first three years.
International certification: a subsidy equivalent to 50% the certification expenses but not over RMB 500,000 Yuan shall be provided to any service outsourcing enterprise that acquires CMM/CMMI3 and higher international certification for the first time.
International communication expenses: a subsidy not over 60% the international communication fees (actual) of the year shall be provided to any service outsourcing enterprise that offers online trust services through the Internet.
Guarantee expenses: for eligible service outsourcing enterprises of Xiamen for which any Xiamen guarantee organ provides export credit guarantees, 50% the de-facto loan guarantee fees shall be subsidized.
Human resources introduction: any pillar employee of software and information service enterprises that enjoys an annual income of over RMB 200,000 Yuan shall enjoy Xiamen’s preferential policies offered to professional talents in terms of household registration and housing regardless of their education background and professional titles.
Public platform expenses: the expenses incurred by any service outsourcing enterprise for the use of the public service platform of the Software Park shall be subsidized at a rate of 50%.
Industrial Support Policies (Service Outsourcing)
•Some Proposals of Xiamen Municipal People’s Government on Encouraging Development of Financial Industry (Excerpt)
A lump-sum subsidy shall be provided as follows to any financial institution and accessory financial service organ newly established or settled in Xiamen:
1. Legal person institution: a subsidy of RMB 1 million Yuan shall be granted to any financial institution with a registered capital of more than (including) RMB 100 million Yuan. For the part of the registered capital above RMB 100 million Yuan, each increment of RMB 100 million Yuan shall be entitled to an additional subsidy of RMB 1 million Yuan. Where the registered capital is more than (excluding) RMB 1 billion Yuan, each increment of RMB 100 million Yuan above RMB 1 billion Yuan shall be entitled to an additional subsidy of RMB 2 million Yuan. The maximum subsidy shall be RMB 20 million Yuan.
2. Regional branch: a subsidy of RMB 1 million Yuan
3. Accessory financial service organ: a subsidy of RMB 1 million Yuan
4. Representative office of any overseas bank: a subsidy of RMB 200,000 Yuan.
The following preferential policies are offered to newly established or settled financial institutions and accessory
financial service organs of Xiamen in terms of land purchasing, property purchasing and property leasing:
1. Purchasing lands for construction of office premises: rewards shall be given upon governmental approval where over 60% of the office premises constructed are to be used by the enterprise itself.
2. Purchasing office premises: a lump-sum subsidy equivalent to 5% the property price shall be provided to legal person financial institutions; a lump-sum subsidy equivalent to 3% the property price shall be provided to regional branches and accessory financial service organs.
3. Leasing office premises: a rental subsidy shall be provided to legal person financial institutions for five years running, i.e. a subsidy equivalent to 30% of the reference rentals for the first three years and 15% for the following two years. A rental subsidy shall be provided to regional branches and accessory financial service organs for three years running, i.e. a subsidy equivalent to 30% of the reference rentals each year.
Industrial Support Policies (Logistics)
•Some Proposals of Xiamen Municipal People’s Government on Promoting Development of Modern Logistics Industry (Excerpt)
Development of third-party logistics enterprises is encouraged. Eligible third-party logistics enterprises shall be rewarded with 20% of the locally-reserved part of the corporate income taxes paid within three years from the year of certification. Enterprises are encouraged to establish logistics headquarters in Xiamen. Famous domestic and overseas enterprises are encouraged to set up logistics enterprises in Xiamen. Any Fortune 500 enterprise and any Class “AAAAA” large-size logistics enterprise that newly establishes allocation, distribution and purchasing-oriented logistics enterprise in Xiamen as its national and regional operating headquarters, commodity allocation center, distribution center, purchasing center and logistics scheme design center shall be rewarded with 20% of the locally-reserved part of the corporate income taxes paid in Xiamen within three years from the year of establishment.
Industrial Support Policies (Tourism)
•Proposals of Xiamen Municipal Bureau of Finance and Xiamen Municipal Bureau of Tourism on Encouraging Tourism Facility Investments and Promoting Development of Tourism Industry (Excerpt)
Nongovernmental investments are encouraged in Xiamen’s tourism facility projects. Discount interests shall be provided for any nongovernmental tourism facility project that has a total bank loan over RMB 30 million Yuan (interest subsidy to be given to the part exceeding RMB 30 million Yuan).
Development of high-level scenic and tourism zones (spots) is encouraged. A lump-sum reward of RMB 1,000,000 and 300,000 Yuan shall be given respectively for any National Class AAAAA and Class AAAA tourism zone (spot) certified by competent national tourism authority.
Development of high-star tourism hotels is encouraged. A lump-sum reward of RMB 500,000 Yuan shall be given for any certified platinum five-star tourism hotel.
Industrial Support Policies (Cultural Innovation)
•Some Policies of Xiamen on Promoting the Development of Cultural Industry (Excerpt)
Certain financial fund rewards shall be given to any newly introduced large and medium-size cultural enterprise or corporate group (or regional headquarters) that has independent legal person status and engages in cultural product manufacturing and cultural service provisions.
Certain financial fund rewards shall be given to any newly established cultural enterprise that engages in innovative planning and design, digital entertainment and network services, new media R&D and application, film and TV creation and production, artwork production and training, electronic publication, cultural exhibition as well as entertainment and cultural agency services that has independent legal person status.
Industrial Support Policies (R&D)
•Measures of Xiamen Municipal People’s Government on Encouraging Establishment of R&D Organs in Xiamen (Excerpt)
A subsidy equivalent to 30% of the actual investments in new R&D equipment shall be given to any R&D organ newly established in Xiamen within three years of the construction phase.
1. The total subsidy may reach RMB 10 million Yuan where the organ has a total investment of more than (including) RMB 100 million Yuan and the new R&D equipment investment accounts for over 20% of the total investments.
2. The total subsidy may reach RMB 5 million Yuan where the organ has a total investment of more than (including) RMB 50 million Yuan but less than RMB 100 million Yuan and the new R&D equipment investment accounts for over 20% of the total investments.
3. The total subsidy may reach RMB 3 million Yuan where the organ has a total investment of more than (including) RMB 20 million Yuan but less than RMB 50 million Yuan and the new R&D equipment investment accounts for over 20% of the total investments.
An additional subsidy equivalent to 10% of the foregoing subsidies shall be provided to any R&D organ whose public lab, public technical platform, industrial and technical alliance, public information platform and other public technical service platform is also certified to be available for public services.
R&D organs are encouraged to actively apply for domestic and foreign patents and their intellectual properties are safeguarded according to law. Certain subsidies will also be provided for their patent application and maintenance.
Before you get into a market or an industry, it is critical for you to develop a deep understanding regarding its tax environment. The Chinese government sometimes regulates specific industry or product/service markets by favorable or unfavorable tax policies. As a result, you need to be in a position to be able to take advantage of privileged tax policies, find the best solution through proper tax planning, avoid any complicated tax rule pitfalls, and accurately project returns of your investment.
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There are lots of different treatments between the prevailing accounting system and tax system in China . The objective of the accounting system is to present financial statements on a true and fair basis, while the tax system represents state sovereignty. Many foreign investors are confused and put off by the differences between the two systems.
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