Government Assistance for Small and Medium Enterprises in the COVID-19 Recovery Period
Ecovis in Shanghai
The Chinese Government has implemented various measures to help small and medium-sized enterprises (SMEs) during the Coronavirus pandemic, including tax, social security, financial, scientific and technological support. The main preferential policies available to SMEs are outlined below.
1. Value-added tax
Enterprises which provide certain services, including the transport key materials for epidemic prevention and control, public transportation services, living services, or express delivery services of daily necessities for residents, shall be exempt from value-added tax (VAT). Items donated to help fight against the pandemic will also be exempt from VAT and consumption tax. By 31 December 2020, VAT regarding taxable sales revenue will be reduced from 3% to 1% for small-scale VAT taxpayers located outside Hubei Province. Those located within the Hubei Province will be exempt from or receive a suspension of prepaid VAT.
2. Enterprise income tax
Regarding tax losses incurred in 2020, the carry-over period has been extended from five to eight years for those enterprises affected by the epidemic. Donations of cash and articles for epidemic response made by public welfare organizations or the people’s governments at or above the county level, and their departments, can be deducted in full before the calculation of enterprise income tax or individual income tax. These donations will be exempt from tax until 31 December 2020. For the small low-profit enterprises, payment of enterprise income tax for the current period can be postponed until the first reporting period of 2021.
1. Periodic reduction or exemption of payment by enterprises for pension, unemployment and work-related injury insurance.
From 1 February 2020 to 31 December 2020, micro, small and medium-sized enterprises (MSMEs) shall be exempt from social insurance payments required by employers. From 1 February to 30 June 2020, large enterprises (excluding government authorities and public institutions) will only be required to pay 50% of their social insurance contributions as employers. Enterprises experiencing severe difficulties in production and operation due to the epidemic may apply for deferred payment of social insurance contributions to 31 December 2020, and not incur late fees during this time.
2. Refund of unemployment insurance
Employers and employees who paid unemployment insurance premiums in the previous year will be refunded 50% of the total amount.
3. Payment of social security contributions delayed
The start and end date of 2020 social insurance payments from municipal employees were adjusted to commence July 1 and end June 30 of the following year. The requirement for 2019 social insurance payments from municipal employees was postponed to June 30 2020.
4. Extension of payment period for social insurance contributions
Enterprises which are adversely affected by the epidemic should report to the social insurance office in Shanghai to receive an extension. Payments will then not be required until three months after the epidemic crisis is deemed to be over. There will be no late fees payable.
5. Periodic reduction of basic medical insurance contributions
From February 2020, contributions to employee basic medical insurance required by enterprises will be halved for a period of up to five months. Enterprises experiencing difficulties may defer these payments for up to six months, during which time no overdue fines will be incurred.
6. Lower Medicare rates
From February to December 2020, the rate of basic medical insurance for employees in Shanghai (including maternity insurance) will be reduced by 0.5 %.
7. Periodic reduction of social insurance premiums in Shanghai
Regarding enterprises located in Shanghai, large enterprises were only required to pay 50% of their usual contributions for endowment insurance, unemployment insurance and work-related injury insurance, from the period of February to April 2020. SMEs were exempt from February to June 2020. Regarding basic medical insurance (including maternity insurance), from February to June 2020, the employer’s contribution was reduced to 5.25% (normally 10.5%). From July to December 2020, the employer’s contribution will become 10% (a reduction of 0.5% of the pre-epidemic rate). Employees will still need be paid.
8. Training subsidy
Enterprises located in Shanghai which are affected by the epidemic may receive a subsidy of up to 95% of out-of-pocket costs for providing online vocational training to their employees (including labour dispatch personnel working in enterprises) during the lockout period.
9. Additional support
Other support available may include rent reduction, prime rate loans for SMEs, financing concessions for technology enterprises and cloud service innovative enterprise support.
Please note: foreign residents of China
Individuals who reside in China for 183 days or more in a calendar year are considered a resident for tax purposes. However, due to the epidemic, any foreigners who normally reside in China but are currently abroad cannot return. This will have a significant impact on the personal income tax declaration of these individuals, with regard to the calculation of their monthly salary and bonuses in 2020. Anyone affected by this situation should seek the advice of their tax professional to discuss their specific circumstances.
By Pingwen Hu and Cao Yi