Last week we started a 3 part blog series as we take an in depth look at the Corporate Income Tax (CIT) preferential treatment in the Qianhai Shenzhen-Hong Kong Modern Services Industry Cooperation Zone (Qianhai). In Part 1, we summarised the background and implementation of the policies as it relates to the CIT preferential treatment in Qianhai on a state and local level.
In Part 2, we outline the 3 steps required to apply for CIT preferential treatment in Qianhai as well as a couple of areas that enterprises should pay special attention to.
How To Apply For CIT Preferential Treatment in Qianhai
The application process is detailed in the “Implementation Measures for the CIT Preferential Treatment of Qianhai” (Implementation Measures) and in the “ Guidelines for Assessment of Industries Eligible for the CIT Preferential Treatment in Qianhai” (Assessment Guidelines) which outline the steps enterprises need to complete as follows:
Step 1: The first step involves business conducting a self assessment to determine whether its main business falls within the CIT Incentives Catalogue for Qianhai and subsequently qualifies for the assessment requirements. Qualified enterprises are allowed to file CIT with the relevant preferential treatment during the provisional CIT filing and the annual CIT filing. The above procedure would be treated as the completion of record filing and no prior approval is required. Enterprises, which have enjoyed the CIT preferential treatment, should retain relevant documents for examination by the tax authorities afterwards.
Step 2: After finishing the annual CIT filing, the in-charge tax authority would carry out post-administration on the qualification of the enterprises that have enjoyed the CIT preferential treatment. Where the tax authority is of the view that it is difficult to determine whether the main business of the enterprise falls within the CIT Incentive Catalogue, the tax authority would issue a written notice to the enterprise requesting it to apply for the assessment certificate of industry sector from the Qianhai Administrative Committee.
Step 3: After receiving the application, the Qianhai Administrative Committee would issue the assessment certificate within the prescribed timeline. Where the enterprise is not qualified for the CIT preferential treatment, the Qianhai Administrative Committee will also issue the enterprise with a written notice. In this case, the relevant tax authority may require the enterprise to pay back the underpaid CIT.
Areas To Pay Attention To When Applying For CIT Preferential Treatment In Qianhai
The Implementation Measures and the Assessment Guidelines go a long way to detail the implementation of the CIT preferential treatment in Qianhai. The policies help in two distinctive ways: Firstly they clarify the requirements for assessing whether an enterprise qualifies for the CIT preferential treatment and provide the application procedures, and secondly, they define the procedures regarding the post- administration by the tax authority.
There are however certain issues that would require enterprises to further communicate with the relevant tax authorities. Issues like how the tax authority assesses that it is difficult to determine whether the main business of an enterprise falls with the CIT Incentive Catalogue? What standards it uses? How long the certificates are valid for? If an enterprise is allowed to proactively secure the assessment certificate from the QIanhai Administrative Committee? Or if the the tax authority relies soley on the certificate to determine whether an enterprise qualifies for CIT preferential treatment?
Lower CIT can be a huge benefit for qualifying enterprises but, as with anything, enterprises who are looking to establish themselves in QIanhai need to do their research before committing to doing so. The Implementation Measures and Assessment Guidelines outline the application process and the qualifying criteria but some issues will still need further investigation. That being said, more than 100000 business have successfully managed to navigate these waters and are benefiting from the 15% preferential tax.
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