China Regulatory Brief: Expanded High-Tech Tax Breaks, China-Sri Lanka FTA and Bankcard Clearance Opens to FDI

November 3, 2014 Posted by China Briefing Reading Time: 4 minutes

Science and Technology Service Industry to Enjoy 15% CIT Rate

China’s State Council recently released the “Opinions on Speeding Up the Development of the Science and Technology Service Industry (Guo Fa [2014] No.49),” which took effect on October 9, 2014. The Opinions clarifies that eligible enterprises engaged in the provision of science and technology services will be regarded as high-tech enterprises and thus be able to enjoy a preferential corporate income tax (CIT) rate of 15 percent. In addition, eligible high-tech enterprises engaged in the science and technology service industry will be able to deduct their employee education expenditure before taxes provided that the expenditure accounts for less than 8 percent of the employee’s wages.

China-Sri Lanka FTA to be Signed in June 2015

Sri Lanka’s Deputy Secretary to the Treasury, S. R. Attygalle recently announced that the signing of a Free Trade Agreement (FTA) previously agreed upon between China and Sri Lanka at the end of 2014 will be postponed to June, 2015. The FTA, projected to cover trade in goods and services, investment, and economic and technological cooperation, is intended to further boost trade between the two countries. In 2013, the two countries’ total trade was approximately US$3.62 billion, but of which Sri Lanka’s exports to China contributed a meager US$183 million. Analysts believe that Sri Lanka may now be concerned that tariff reductions included in the upcoming FTA will substantially reduce the cost of Chinese manufactured goods, and thereby shatter the country’s domestic manufacturing industry.

Shanghai Further Supports Local Film Industry

On October 27, the Shanghai Publicity Ministry and the Shanghai Municipal Administration of Culture, Radio, Film & TV jointly released “Several Policies on Promoting the Development of Shanghai’s Film Industry” during the 2014 Shanghai Film Industry Seminar. According to the Policies, financial support of more than RMB 200 million will be provided annually to promote the development of the film industry. Eligible film enterprises using advanced technology shall be subject to a reduced corporate income tax (CIT) rate of 15 percent. Further, film enterprises providing services such as film distribution and projection to foreign enterprises shall be exempt from value-added tax (VAT).

China to Open up Domestic Bankcard Market

On October 29, Chinese Premier Li Keqiang held an executive meeting of the State Council in which it was stipulated that eligible foreign enterprises will be able to set up bankcard clearance institutions within China, opening the door for Visa and MasterCard to compete with the dominant state-owned giant, China UnionPay (CUP). Further, offshore clearance institutions providing foreign exchange clearance services for cross-border trading will be no longer required to set up clearance institutions within China. China maintains CUP as a monopoly supplier for the clearing of certain types of RMB-denominated payment card transactions and requires all payment cards issued at home to work with the CUP network and carry its logo. Previously, a WTO ruling mandated that China open its electronic payment market by August 29, 2015.

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