Executive Summary
On 27 September 2013, the State Council published the “General Plan for China (Shanghai) Free Trade Zone” (the Plan) on its official website by releasing Guofa `2013` No. 381. The Plan sets out the guiding principles with respect to the general requirements, major tasks and measures, supervisory mechanism, tax policies and further opening up of the service sector in China (Shanghai) Free Trade Zone (SHFTZ or the FTZ).
Pursuant to the Plan, special tax policies related to income taxes (including Corporate Income Tax (CIT) and Individual Income Tax (IIT)), import-level taxes and export tax refund will be implemented in the FTZ to promote investment and trade development, which mainly include:
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Promoting investment – installment plan available for income taxes |
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Installment plan available for income taxes related to asset appreciation: |
In an asset restructuring transaction, for the appreciation of non-cash assets used as investments, the related enterprise/ individual shareholders may be allowed to pay related income taxes by installments through a period of up to five years. |
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Installment plan available for income taxes related to stock incentives: |
High-end talents and talents in short of supply, who receive stock options in the form of share stock or capital contribution from enterprises in the FTZ, may be allowed to pay related IIT by installments. |
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Promoting trade – export tax refund, import-level Value-Added Tax (VAT) |
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Project subsidiaries established in the FTZ by finance/financial leasing enterprises (融资租赁/金融租赁) incorporated in the FTZ (Project Subsidiaries) will be eligible to enjoy the pilot export tax refund policy granted to finance lease businesses. |
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Finance lease |
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Aircraft with a loading capacity of 25 tons or above purchased by Project Subsidiaries from overseas and leased to domestic airlines can be exempted from import-level VAT. |
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Finance lease |
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Qualifying imported machineries and equipments |
Machinery and equipment imported by manufacturing enterprises (or service enterprises with manufacturing functions) located in the FTZ may be exempted from Customs duty/ Import-level VAT/import-level Consumption Tax. |
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Details of import-level tax policies for the SHFTZ
- Leasing enterprises registered in the SHFTZ or their project subsidiaries established in the SHFTZ, that are approved to purchase aircraft with a net weight of 25 tons or above for leasing to domestic airlines, shall be eligible for the preferential VAT policies stipulated in Caiguanshui `2013` No. 53 (“Circular 53”, i.e., notice regarding the adjustment of VAT policies related to the importation of aircraft) and Shushuifa `2013` No. 90 (“Circular 90”, i.e., notice regarding certain issues related to adjustments to import-level VAT for aircraft), i.e., importation of such aircraft shall be subject to VAT at a reduced rate of 5%. (Please refer to CTIE2013035 for details of Circular 53.)
- Products manufactured or processed by enterprises registered in the SHFTZ and sold domestically via the second port of entry (i.e., the dividing line between the SHFTZ and other locations in China) shall be subject to import-level VAT and CT. Customs Duty (CD) shall also be imposed on domestic sales of the products based on their actual state or imported materials used to produce the products.
- Under prevailing policy framework, machinery and equipment imported by manufacturing enterprises or service enterprises, which engage in manufacturing services, located in the SHFTZ shall be exempt from import-level taxes. However, goods imported by life-related service enterprises and those specifically stipulated as non-tax exempted items according to relevant laws and regulations cannot be eligible for the incentive.
- Bonded trading platforms for designated areas are permitted in the SHFTZ, provided that import-level tax policies for importation of goods are strictly implemented.
- In addition to the above import-level tax policies, existing tax policies for special customs supervision zones shall be applicable to the SHFTZ; those special customs supervision zones include Shanghai Waigaoqiao Bonded Zone, Shanghai Waigaoqiao Bonded Logistics Park, Yangshan Bonded Port and Shanghai Pudong Airport Comprehensive Bonded Zone.
Conclusion
The Plan has been approved and announced by the State Council, which would spark some attention from the global business community as they move to develop their presence in China. All details stipulated in the Plan or in the follow-up rules deserve more in-depth research and understanding.