Dubbed China’s Manhattan, the Qianhai Shenzhen-Hong Kong Modern Services Industry Cooperation Zone (Qianhai) plays an important part of China’s future as they move to open up the Chinese economy and the Renminbi to the rest of the world. The zone is a testing ground for progressive policies where currency controls and rules on tax and investing, are relaxed. This allows the Chinese government to monitor policy reform before implementing it on a national scale.
Why The QianHai Special Economic Zone Is So 'Special'
The Qianhai Special Economic Zone (SEZ) in Shenzhen is one of four regions in Mainland China that currently have a 15% preferential Corporate Income Tax (CIT) rate. The State Council released the “Catalogue for Encouraged Industries Eligible for CIT Preferential Treatment” in March 2014, which formally launched the CIT preferential treatment for Qianhai at the state level. Since then, the Qianhai Administrative Committee, the Shenzhen State Tax Bureau (Shenzhen STB), and the Shenzhen Local Tax Bureau (Shenzhen LTB), have collaborated to release the implementation regulations that companies will have to comply with in order to benefit from the CIT preferential treatment.
This blog is the first in a 3 part series as we take an in depth look at the CIT preferential treatment. Below, we summarise the policies as it relates to the Qianhai CIT preferential treatment on a state and local level.
Background
On 25 March 2014, China's Ministry of Finance and State Administration of Taxation (SAT) jointly issued a circular, Caishui [2014] No. 26 (Circular 26) providing three CIT Incentive Catalogues to clarify the criteria for the 15% CIT preferential treatment applicable to enterprises in Hengqin New Area (Hengqin), Qianhai Shenzhen-Hong Kong Modern Services Industry Cooperation Zone, and Pingtan Comprehensive Pilot Zone (Pingtan) respectively. The three zones were identified by the State Council of China as geographic areas to be further developed with a strategic focus.
Qualifying Criteria
Circular 26 provides two criteria for an enterprise established in one of the three zones to enjoy the 15% CIT rate:
- The first criterion requires that an applicant's main business must fall within one of the specified categories.
- The second criterion requires that more than 70% of total revenue of the applicant must be derived from its main business qualifying for the first criterion.
Whether the applicant meets this criterion is generally determined by local government authorities. The CIT Incentive Catalogue of Qianhai covers 21 industry sectors under four broad categories: Finance, Modern Logistics, Information Services, and Technology and Professional Services.
Implementation
Since the release of Circular 26, the Qianhai Administrative Committee together with the Shenzhen STB and the Shenzhen LTB have issued a number of local implementation regulations, which include:
- In July 2014,the Qianhai Administrative Committee released a notice stating that qualified enterprises are allowed to file and pay CIT with the reduced rate of 15% starting from the second quarter of 2014.
- In May 2015, the Shenzhen STB and the Shenzhen LTB jointly issued the “Implementation Measures for the CIT Preferential Treatment of Qianhai” which set forth the requirements for the implementation of CIT preferential treatment in Qianhai, including: scope of application, procedures for filing CIT, and administrative measures.
- In July 2015, the Qianhai Administrative Committee issued the “Guideline for Assessment of Industries Eligible for the CIT Preferential Treatment in Qianhai” providing assessment standards for those industry sectors entitled to the CIT preferential treatment in Qianhai and listing the requirements for obtaining the assessment certificates where the tax authority has difficulty determining whether the main business falls within the CIT Incentive Catalogue.
The CIT preferential treatment is part of the Chinese government’s plan to open up its economy and the Renminbi to international markets. The three geographic locations of Henqin, Qianhai, and Pingtan were selected to pilot these incentives in various sectors.
Qianhai focuses on four main industries: Finance, Modern Logistics, Information Services, and Technology and Professional Services which blanket 21 sectors. The Qianhai Administrative Committee in conjunction with the Shenzhen STB and Shenzhen LTB have issued a number of documents outlining which industries qualify, how the application process works, as well as a set of guidelines for the implementation of the CIT preferential treatment as it applies to Qianhai.
The preferential tax policies have already attracted over a 100 000 business to the Qianhai SEZ which are expected to generate 150 billion Yuan by 2020 as it transforms into a modern services centre and regional powerhouse.
Your thoughts...
Would you consider opening a company in the QianHai SEZ? What makes this location most attractive for you? What industry are you in?
What, if anything would you like to know about QianHai?
Please feel free to let us know what you think in the comments section below!
