Shanghai Free Trade Zone Gives 7 Tax Preferences

A Department Chief at China's Ministry of Finance recently reveals that, at present, China Shanghai Pilot Free Trade Zone (FTZ) can provide seven policies on tax preference, two of them encouraging investment and five encouraging trade, while does not levy 15% enterprise income tax.

The Pilot FTZ's two tax policies that encourage investment:

1. The enterprises or individual shareholders registered within the FTZ may pay income tax by installment within five years for the added asset value arising from their investment abroad and reorganization in non-monetary assets, also known as "the policy on non-monetary asset investment";

2. The income-tax payment on stock ownership incentives may be implemented for the awards which the enterprises within the FTZ grant to their talents in the form of stock rights such as shareholding or rental ratio, also known as "the policy on stock right incentives".

The Pilot FTZ's five tax policies that encourage trade:

1. The export tax refund may be trialed for financial leasing enterprises registered within the FTZ or financial leasing subsidiaries set up within the FTZ;

2. As regards domestic leasing companies registered within the FTZ or the leasing subsidiaries set up within the FTZ, the import value-added tax preference may be granted to the not-less-than-25-ton airplanes purchased from abroad for airline companies;

3. The goods processed by the FTZ-based enterprises may be subjected to corresponding tax policies for domestically-sold goods, known as "the optional taxation policy";

4. Tax exemption may be applied to the machinery imported by the manufacturing-based enterprises located within the FTZ, excluding the consumption-based enterprises and the non-exemption regulated by the law or authority;

5. Tax refund at ports of shipment may be improved.

In addition, two other tax systems are under study: 1. to develop the tax policies adapting to external equity investment and offshore business expansion without violation of regulations, transfer of profit, or erosion of tax base; 2. to build the mode of supervision by state of goods, which relates to both the supervisory reform and relevant tax policies.

Regarding enterprise income tax, it is said that the FTZ is not prepared well to implement the 15% tax rate and that its reform is required to comply with the national reform direction and with the principles of fairness, uniformity and normativeness.