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China GAC issues a Notice on Implementation of the Guidance Catalogue for Industrial Structure Adjustment

For the "encouraged" industrial projects, tax reduction or exemption policies will be implemented for the import of related technologies and equipment. Besides the tax policies, the Notice also introduces the application format requirements and transitional provisions.

On 21st December, the China General Administration of Customs (GAC) issued a Notice [1] on Implementation of the Guidance Catalogue for Industrial Structure Adjustment. The Catalogue [2], which was officially released on 30th October, will enter into effect on 1st January 2020. Since the Catalogue is coming into force soon, GAC details four main implementation points in the Notice, including the introduction of the tax reduction or exemption policies for the encouraged technologies, etc., the application format requirements, and some transitional provisions.

Tax Policy 

For the domestic investment projects covered in the scope of the Encouraged Catalogue, in accordance with the relevant regulations, the import of equipment within the total investment is exempted from customs duties. The technology, accessories, and spare parts that are imported together with the equipment, as specified in the contract, are also not subject to duties. The Notice also emphasizes that the import VAT shall still be collected according to regulations, and the tax reduction policy is not applicable to the commodities that have been specified in other regulations being ineligible for any exemptions. 

Application Format Requirements

The Notice also introduces the criteria, format, and standard application process to show eligibility as an “encouraged” enterprise in the Confirmation Letter of Domestic and Foreign Investment Projects that Encouraged by the State. Firstly, the “Applicable Industrial Policy Items” in Confirmation Letter shall be filled with the corresponding policy item listed in the Encouraged Catalogue (2019 edition), the format shall be the code of the item specified in the Catalogue (V plus four numbers). Next, the "Project Category" shall be filled with "Project Encouraged by the State (M)." The above format requirements are also applicable to the Confirmation Notice on Application to the Encouraged Policy Item, which is issued by customs authorities. 

Transitional Provisions

For domestic investment projects reviewed before 2020 and designated as “encouraged” as per the Catalogue (2011 Edition), they will still be subject to the tax exemption policy as long as they obtain the Confirmation Letter and the Confirmation Notice before 2021. And the policy item code filled in the Confirmation Letter and Confirmation Notice shall be consistent with the Catalogue (2011 Edition). For the domestic investment projects reviewed before 2020 and encouraged by the Catalogue (2019 Edition), they will be subject to the preferential tax policy only after they obtain the confirmation documents.

For domestic investment projects under construction, which were previously not considered as "encouraged” as per the Catalogue (2011 Edition) but are now considered "encouraged" as per the Catalogue (2019 Edition), are now subject to preferential tax policies in all subsequent importation activities, however, taxes already collected are non-refundable.

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