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Tax and Financial Supportive Measures on Work Resumption amid COVID-19.

Par Alban Renaud, Huini Li et Denis Santy, Avocats.

Due to the outbreak of COVID-19 in early 2020 in China, strict blockade measures have been implemented across China by government bodies at all levels, and plenty of enterprises have encountered huge difficulties in operation and production. Under current circumstances, diversiform favourable tax and financial measures have been adopted by national and local governments bodies to mitigate the burden of enterprises and stimulate the economy recovery. Below we introduce some key measures in several provinces.

Résumé en Français.

Coronavirus et reprise du travail : focus sur les mesures fiscales et financières mises en place.

En raison de l’apparition du COVID-19 au début de 2020 en Chine, des précautions très strictes ont été mises en place par les autorités chinoises pour prévenir toute diffusion de l’épidémie. Au regard de cette situation exceptionnelle, les instances gouvernementales, au niveau national et local, ont pris plusieurs mesures fiscales et financières afin de stimuler la reprise économique et venir en aide aux entreprises qui font face à d’énormes difficultés de fonctionnement et de production. Nous présentons ci-dessous quelques mesures clés adoptées dans plusieurs provinces.

Due to the outbreak of COVID-19 in early 2020 in China, strict blockade measures have been implemented across China by government bodies at all levels, and plenty of enterprises have encountered huge difficulties in operation and production. Under current circumstances, diversiform favourable tax and financial measures have been adopted by national and local governments bodies to mitigate the burden of enterprises and stimulate the economy recovery. Below we introduce some key measures in several provinces.

I. Reducing or exempting rentals.

1.1 Shanghai.

Rentals in February and March of small and medium-sized enterprises (“SMEs”) leasing/sub-leasing from the state-owned enterprises (“SOEs”) for production and operation may be exempted. Other types of landlords are not obliged to grant a rental deduction or exemption.

1.2 Beijing.

100% rentals in February of SMEs leasing/sub-leasing from SOEs for production and operation purpose may be exempted, or 50% for office purpose. In Chaoyang district, deduction of 50% rentals for production or operation or office use may be extended to March and April. Other types of landlords are not obliged to grant a rental deduction or exemption.

1.3 Hubei.

For SMEs which rent state-owned assets for operation and production, 3 months’ rentals may be exempted, and 50% of the rentals for the next 6 months may be reduced. The government encourages the rental relief to be granted to SMEs. For the provincial SMEs entrepreneurship and innovation bases that reduce the rentals for the SMEs, the government may provide a subsidy not exceeding 50% of the total rentals reduced. The total subsidies provided to each base shall not exceed 2 million RMB.

1.4 Zhejiang.

For SMEs which rent state-owned assets for operation and production, upon the effectiveness of blockade measures, the rentals for the first month may be exempted, and 50% of the rentals for the second and the third month may be reduced.

II. Tax-related incentives.

2.1 Shanghai & Beijing.

(1) Enterprises are entitled to delay the tax declaration to February 28th or a later date after submitting reasonable explanations to the tax authority.
(2) Cash and materials donated for fighting against the epidemic can be deducted from the enterprise income tax.
(3) The longest carry-forward period of losses incurred by enterprises in difficult-ridden industries (such as transportation, tourism, catering, accommodation service industries) affected by the epidemic in 2020 is extended from 5 to 8 years.
(4) Import VAT, consumption tax and duty of imported materials donated for epidemic prevention can be exempted.
(5) Income generated from transporting materials for epidemic prevention, providing public transportation/living/carrier services can be exempted from VAT.
(6) The donated goods can be exempted from VAT, consumption tax and surcharge.

2.2 Additional measures in Shanghai.

Housing property tax and land use tax of an enterprise whose premise or land is expropriated for the epidemic prevention can be exempted.

2.3 Hubei.

(1) SMEs may apply for tax relief regarding the real estate tax and urban land use tax if their business operations are severely affected due to the epidemic, and it is indeed difficult for them to pay such tax.
(2) Import VAT and duties, consumption tax of imported materials donated for epidemic prevention can be exempted.
(3) If a taxpayer is unable to pay the tax on time due to the impact of the epidemic, the tax payment may be deferred for 3 months maximum, upon approval by the provincial tax authority.

2.4 Zhejiang.

(1) SMEs may apply for tax relief regarding the real estate tax and urban land use tax if their business operations are severely affected due to the epidemic, and it is indeed difficult for them to pay such tax.
(2) SMEs that have suffered from asset losses due to the epidemic may deduct the asset losses before the payment of the enterprise income tax.
(3) SMEs that have difficulties to pay the tax on time due to the impact of the epidemic may apply for deferring the payment for 3 months maximum.

III. Measures related to social insurance.

3.1 Shanghai.

(1) 50% of the unemployment insurance premium contributed by an enterprise in the previous year will be returned to the enterprise which stabilizes the employment by reducing/avoiding layoffs in 2020.
(2) The time to adjust social insurance base in 2020 will be delayed to July 1st, 2020, which normally means the social insurance burden of enterprises will not be increased until July.
(3) An enterprise may postpone the payment of social insurance contribution without paying any overdue fine after filing with the social insurance institution, if it is affected by this epidemic.
(4) The medical insurance rate of enterprises will be reduced from 9.5% to 9% in 2020.

3.2 Beijing.

(1) 50% of the unemployment insurance contributed by an enterprise in the previous year will be returned to the enterprise which stabilizes the employment by reducing/avoiding layoffs in 2020.
(2) A lump sum subsidy may be granted to SMEs whose number of employees keeps stable or increases by the end of April 2020 compared with 2019.
(3) Enterprises may postpone the payment of social insurance of January and February to the end of March or July (limited to the enterprises in the industries of tourism, catering, accommodation service, convention and exhibition, comer circulation, transportation, education and training, cultural performance, film and theatre, ice and snow sports).
(4) Training subsidy amounting to RMB1,000 per employee may be granted to enterprises that organize skill trainings to employees in 2020.

3.3 Wuhan.

(1) 70% of the unemployment insurance premium contributed by an enterprise in the previous year will be returned to the enterprises whose layoff rate is not higher than 5.5%. 50% of the unemployment insurance premium contributed by an enterprise with less than 500 insured employees in the previous year will be directly returned to the enterprise. An amount calculated based on the local average unemployment insurance per person and the number of insured employees may be returned to the enterprises that confront operation difficulties but avoid or reduce downsizing.
(2) SMEs that confront operation difficulties due to the epidemic may defer payment of pension, unemployment insurance, work-related injury insurance upon approval. The deferment period normally shall not exceed 6 months, in any cases the period shall not exceed 12 months.

3.4 Zhejiang.

(1) For SMEs that do not have layoff, 50% of the unemployment insurance premium contributed by the SMEs in the previous year will be returned to them. For SMEs that confront operation difficulties but avoid downsizing, the amount that will be returned to them is based on 50% of the social insurance payments effected by the enterprises and employees in six months.
(2) SMEs that confront operation difficulties due to the epidemic may defer payment of social insurance. The social insurance will be paid back within three months after the termination of the epidemic.

IV. Financial aid.

4.1 Shanghai.

(1) A subsidy amounting to 95% of the training costs may be granted to enterprises that organized online professional trainings to employees during the work suspension period.
(2) Strengthening the loan support to enterprises with cash flow difficulties, such as prolonging the repayment period, changing the repayment schedule, etc.
(3) Reducing the guarantee rate of the first loan of SMEs to 0.5% per year, and 50% of the guarantee rate off of the subsequent loans.

4.2 Beijing.

(1) Subsidy up to 70% of the rental, decoration expense, equipment purchasing cost and other costs may be granted to chain catering (breakfast) enterprises, grocery stores (fresh supermarket), convenience stores and other enterprises which are vital to the basic living of the public during the epidemic.
(2) Sewage treatment fee, urban road occupation fee and inspection fee of special equipment of micro, small and medium-sized enterprises which are severely impacted by the epidemic, can be exempted since February.
(4) Increasing the granting of credit and loans to SMEs and the cost of such financing may decrease by 0.5% compared with 2019.
(5) Guarantee rate of governmental guarantee agencies should be reduced by 0.5% for SMEs ; such guarantee rate should be decreased to below 1.5% for enterprises providing living services or below 1% for enterprises relating to epidemic prevention.

4.3 Hubei.

(1) The price of industrial water and gas is reduced by 10% from January 1st 2020 to June 30th 2020.
(2) Electricity, gas, water used by SMEs during their business operation will not be suspended in the event of the non-payment of utilities. Such utilities may be paid three months after the termination of the epidemic without a fine for delaying payment.
(3) The government encourages financial institutions to lower the interest rate on loans and to develop the credit loans, and medium or long terms loans.
(4) Exempting SMEs which are severely impacted by the epidemic from the payment of the special equipment inspection fee, sewage treatment fee, environmental protection inspection fee and measurement instrument verification fee.

4.4 Zhejiang.

The price of industrial water and gas is reduced by 10% for three months.

V. Specific measures for Key Enterprises.

5.1 Shanghai & Beijing.

(1) Equipment purchase expenses incurred by key enterprises for epidemic prevention (the “Key Enterprises”) are entitled to tax deduction.
(2) Registration fee of drugs and medical devices relating to epidemic prevention may be exempted.
(3) Financing support may be granted to Key Enterprises, such as preferential loan and interest subsidy.

5.2 Additional measures in Shanghai.

A subsidy amounting to 50% - 80% of the total investment for an emergency technical transformation project may be granted to enterprises which have been expropriated to produce epidemic-prevention materials.

VI. Specific measures for cultural enterprises.

6.1 Shanghai.

(1) 80% of the tourism service quality deposit may be temporarily returned to tourism agencies.
(2) 100% of the construction fee for cultural undertakings contributed by enterprises may be subsidized by the finance.

6.2 Beijing.

(1) 80% of the tourism service quality deposit may be temporarily returned to tourism agencies.
(2) Strengthening the financial support to cultural enterprises, including but not limited to encouraging the banks to increase the grant of credit and loan to cultural enterprises, supporting cultural enterprises to issue bonds for financing, setting up the culture development fund to expand the financing channels for enterprises, etc.
(3) Certain subsidies may be granted to the venue rental of suspended exhibitions which will be held within 2020 and in which SMEs accounting to over 50% of the total exhibitors.

Comments.

With rapid change of the epidemic situation every day, policies and measures are updated often. Until the date of this Newsletter (February 28th, 2020), the ratio of work resumption of SMEs is still below 40%. More preferential measures dedicated to SMEs are expected by the entrepreneurs.

Due to the complexity of the measures, provision of e-platforms, clear application flows and hot lines along with detail interpretation or even case study would vastly facilitate enterprises to efficiently employing these measures. In this sense, generally speaking, the preferential measures in Beijing could be more convenient for enterprises to follow, in that not only the responsible government departments, but also the specific official in charge and his/her contact information and operational guidelines for certain measures are publicized by the relevant government departments.

It is also noticed that the Chinese Ministry of Commerce (the “MOC”) has issued a circular on February 10th relating to actively containing the epidemic and strengthening services for foreign-invested enterprises (the “FIEs”) (the “Circular”). In this Circular, it requests the local commercial departments to constructively support FIEs to resume production and operation in order, assist FIEs in purchasing epidemic-prevention materials, guide FIEs to compile epidemic-prevention working plans, safeguard the use or recruitment of workers, streamline the online services, set up liaison system for major foreign-invested projects, etc.

This Circular demonstrates the consciousness of the Chinese government to better protect FIEs in this difficult period. Considering that the MOC measures are not concrete enough, the implementation thereof by local authorities is still to be observed.

Alban Renaud, Huini Li et Denis Santy, Avocats.
Cabinet ADAMAS
https://www.adamas-lawfirm.com/

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