How to apply for CIT incentives in China? China offers a number of preferential corporate income tax (CIT) policies for businesses operating in the country. Businesses that qualify for these preferential policies can benefit from incentives like CIT rates lower than the standard 25 percent rate and other CIT exemptions and deductions. These preferential tax treatments, however, do not automatically apply, businesses must first determine their eligibility and carry out the appropriate steps to benefit from the incentives.
Changes on CIT Incentives Application
This year, the government revised the policies for applying for CIT incentives. The changes introduced in these documents streamline the application procedure for preferential CIT policies.
Rather than apply with the tax bureau, corporate taxpayers can now determine by themselves whether they are eligible for preferential tax policies, and enjoy the incentives when they make CIT returns (at the time of pre-payment or final settlement, depending on the specific incentive).
Now, the process was further simplified. If a taxpayer determines that they are eligible for preferential CIT policies, they must simply make the relevant tax declarations, without the need for record-filing with the tax bureau before or after.
However, as the onus of determining eligibility is now on the taxpayer, they must accurately assess their status and comply with relevant regulations. Failure to do so could result in taxpayers having to pay back their full tax liabilities, and could also expose them to potential fines and other penalties.
Requirements on Application
The latest Catalogue includes 69 tax items that are covered by the simplified procedures. These include incentives for small- and medium-sized enterprises, companies established in western China, and businesses engaged in high-tech industries, etc.
For example, certain companies in development zones can benefit from a 15 percent CIT rate, as can high-tech companies. Eligible software enterprises may benefit from CIT rates as low as 10 percent.
The SAT requires companies to submit an Annual CIT Reconciliation Report within five months after each year-end to determine if all tax liabilities have been met, and whether the company needs to pay supplementary tax, or apply for a tax reimbursement.
Companies engaged in diversified businesses should be especially mindful that the SAT requires separate accounts to be prepared both for sales that meet the conditions for preferential treatment and those that do not. If eligible sales cannot be clearly differentiated, they are not entitled to preferential treatment.
They also need to pay attention to other relevant certificates for qualification. There are special tax benefits for companies in encouraged industries, such as high-tech and environmental protection. However, in most cases, even if a company does qualify, it still needs to obtain certificates from relevant government departments to show its specialty in such areas to the tax authority.
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