In this China Monthly Tax Brief for January 2025, we highlight significant taxation developments for businesses and individual taxpayers. Among others:
- China implements a new tax refund policy for cross-border e-commerce exports;
- Shanghai FTZ Lingang New Area releases new guidelines for corporate income tax incentives;
- The State Taxation Administration releases a draft of individual income tax settlement and payment management measures for public comment; and
- Three ministries jointly issue a notice to optimize and adjust the "zero tariff" policy for raw materials in the Hainan Free Trade Port.
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China implements new tax refund policy for cross-border e-commerce exports
In a significant move to bolster the cross-border e-commerce sector, China's State Taxation Administration (STA) has announced a new tax refund policy for goods exported through overseas warehouses. The policy, detailed in STA Announcement [2025] No. 3, introduces a "tax refund upon departure" mechanism for goods under customs supervision code "9810." This initiative aims to streamline the tax refund process, expedite refunds, and reduce costs for enterprises, thereby enhancing their competitiveness in the international market.
Key provisions of the announcement include:
- Immediate tax refund upon departure: Goods exported through overseas warehouses can now apply for tax refunds immediately after customs clearance. For goods already sold, the current regulations apply, while unsold goods will follow a "refund upon departure, recalculation upon sale" approach.
- Pre-Refund application: Taxpayers must submit export declarations and relevant materials to their tax authorities to apply for a pre-refund. The application must include an "overseas warehouse pre-refund" identifier. Separate applications can be made for sold and unsold goods, or a unified pre-refund application can be submitted if no distinction is made.
Taxpayers must follow the current regulations and the standard application process for export tax refunds on goods that have already been sold. For unsold goods, they must use the “refund upon departure, with subsequent sales reconciliation” method to declare export tax refunds. These are separate processes, not duplicate applications.
- Reconciliation period: Taxpayers who have applied for pre-refunds must complete the reconciliation process within the specified period (from the first day of the month following the pre-refund to April 30 of the following year). Failure to do so will result in the recovery of the pre-refunded amount by the tax authorities.
- Reconciliation process: During reconciliation, taxpayers must adjust the refund amount based on actual sales, confirming any discrepancies between the pre-refunded and actual refundable amounts.
- Changes and withdrawals: Taxpayers who need to change their refund method or withdraw their tax refund registration must first complete the pre-refund reconciliation.
- Documentation requirements: In addition to the current documentation requirements, taxpayers must also comply with supplementary provisions, including using overseas warehouse-related materials for documentation and retaining sales evidence.
- Compliance and verification: Taxpayers must accurately declare and reconcile pre-refunds and refunds. The tax authorities will review and process applications according to regulations and investigate any suspected fraudulent refund claims.
- Effective date: The announcement is effective immediately and applies to goods exported before the announcement date but not yet declared for tax refunds.
Guidelines for pre-refund reconciliation
The tax authorities provide an electronic platform listing unaccounted pre-refund data to facilitate efficient reconciliation. Taxpayers should follow these steps based on their sales status:- No adjustment needed: If the goods have been sold and the refund amount is correct, select "No Adjustment Needed" to complete the reconciliation.
- Adjustment needed: If the goods have been sold but the refund amount is incorrect, select "Adjustment Needed," make the necessary adjustments, and complete the reconciliation.
- Goods not sold: If the goods have not been sold, select "Adjustment Needed," return the pre-refunded amount, and apply for a refund following the regular process after the sale.
Shanghai FTZ Lingang New Area: New guidelines for corporate income tax incentives
The Shanghai Municipal Finance Bureau, the State Taxation Administration Shanghai Branch, and the Shanghai Municipal Commission of Economy and Informatization have jointly issued the Administrative Measures for the Recognition of Corporate Income Tax Incentive Qualifications for Key Industries in the Lingang New Area of China (Shanghai) Pilot Free Trade Zone (Hu Cai Fa [2024] No. 12). This revised guideline, effective from January 1, 2025, aims to streamline the qualification process for corporate income tax (CIT) incentives, fostering industrial upgrades, attracting investment, and enhancing regional economic competitiveness.According to the provisions, enterprises in key sectors such as integrated circuits, artificial intelligence, biomedicine, and civil aviation, located in the Lingang New Area, are eligible for a reduced CIT rate of 15 percent for the first five years from their establishment, provided they engage in substantial production or R&D activities.
To qualify for the tax incentives, enterprises must meet the following conditions:
- The enterprise must be registered in the Lingang New Area and established for no more than five years (excluding those relocated from other regions).
- The primary business must involve key sectors such as integrated circuits, artificial intelligence, biomedicine, or civil aviation, focusing on core areas specified in the Cai Shui [2020] No. 38.
- The enterprise must conduct substantial production or R&D activities within the Lingang New Area.
- At least one major R&D or sales product (technology) must be classified as a key product (technology).
- The investment and R&D production conditions must comply with the relevant provisions of the Cai Shui [2020] No. 38.
This policy is expected to drive significant growth in the Lingang New Area by attracting high-tech enterprises and fostering innovation in key industries. The reduced tax rate will lower operational costs for businesses, improve cash flow, and enhance their competitive edge in the global market.
Enterprises must ensure compliance with the new guidelines by accurately documenting their production and R&D activities. The tax authorities will review applications and verify the authenticity of the submitted information. Non-compliance or fraudulent claims will be subject to investigation and penalties.
Draft of individual income tax settlement and payment management measures released for public comment
On January 3, 2025, the STA released the draft of the Administrative Measures for Final Settlement of Individual Income Tax on Consolidated Income for public comment. The consultation period will end on February 2, 2025. This draft aims to standardize the individual income tax (IIT) settlement and payment process for consolidated income, ensuring the protection of taxpayers' legal rights.The draft is part of the STA's ongoing efforts to enhance tax administration and ensure that the tax system is fair and transparent. By involving the public in the consultation process, the STA aims to create a more inclusive and effective tax policy framework.
Key provisions of the draft are summarized in the below table:
| Category | Details |
|---|---|
| Settlement preparation | Taxpayers need to gather all relevant income, deductions, and tax incentives related to consolidated income:
|
| Settlement processing |
|
| Tax refunds and payments |
|
| Settlement management |
|
Expansion of Hainan Free Trade Port's "zero tariff" policy for raw materials
On January 24, 2025, the Ministry of Finance, the General Administration of Customs, and the STA jointly issued a notice to optimize and adjust the "zero tariff" policy for raw materials in the Hainan Free Trade Port. This move aims to further promote the development of the free trade port.Key adjustments include:
- Policy expansion: An additional 297 items, including unroasted coffee, ethylene, and machine parts, have been added to the "zero tariff" raw materials list. This expansion is designed to help Hainan enterprises reduce costs and enhance their competitiveness.
- Supplementary repair clauses: For the repair of "zero tariff" yachts and self-use production equipment, the policy now clearly exempts import duties, import value-added tax (VAT), and consumption tax.
- Adjustment of usage and transfer regulations: The policy specifies that when "zero tariff" raw materials are transferred to entities that meet the policy conditions, they are exempt from import duties, import VAT, and consumption tax.
Additionally, on February 5, 2025, the Hainan Provincial Government issued the Management Measures for the Import of 'Zero Tariff' Transportation Vehicles and Yachts in the Hainan Free Trade Port (Trial). This measure aims to implement the overall plan for the construction of the Hainan Free Trade Port and strengthen the management of "zero tariff" imported transportation vehicles and yachts.
The policy adjustment aims to expand the range of "zero tariff" goods, reduce enterprise costs, and stimulate market vitality. At the same time, it strengthens the supervision of the use and transfer of raw materials to ensure the effectiveness and fairness of tax policies. Enterprises should closely monitor policy changes and make reasonable use of the "zero tariff" policy advantages to promote their development.
Other tax updates
- Revision of CIT annual return forms: According to the CIT Law of the People's Republic of China" and related policies, the STA has revised certain forms and instructions for the Corporate Income Tax Annual Return (Class A, 2017 Edition). This revision involves eight forms, with two forms being canceled and six forms being revised. Additionally, the instructions for 15 related forms have been adjusted. This announcement applies from the 2024 tax year onwards and does not retroactively adjust matters from previous years.
- Adjustment of VAT return filing: The STA issued Announcement No. 2 of 2025, effective from February 1, adjusting matters related to VAT return filing. Tax authorities will provide a data aggregation service for taxable export goods. Taxpayers must confirm the use of export goods information data online via the electronic tax bureau. Taxpayers engaged in processing imported materials for re-export must additionally report the amount of bonded imported materials used. Moreover, the "VAT and Additional Tax & Fee Return" and its attached documents have been updated. This includes supplementary and optimized instructions for filling in the prepayment of tax amounts, adjustments to the descriptions for VAT payments by headquarters, and clarification of specific reporting rules for different prepayment rates. The terms "off-site" and "cross-county (city)" have been removed from the prepayment form for construction services, standardizing the reporting conditions for prepaid construction service taxes.
- Draft regulations for tax information reporting by Internet platform enterprises: The STA has released the Regulations on Tax Information Reporting by Internet Platform Enterprises (Draft for Comments) for public consultation until January 19, 2025. The draft aims to standardize the tax information reporting by internet platform enterprises, enhance tax administration efficiency, and promote the healthy development of the platform economy. The regulation requires internet platform enterprises to regularly report tax-related information of operators and employees on their platforms to the tax authorities, including identity and income information. They are responsible for the accuracy of the information. Failure to report on time may result in administrative fines. The regulation will not increase the tax burden on compliant operators but will improve the transparency of internet business data and enhance the tax authorities' ability to identify non-compliant tax behaviors.
