2021 China tax planning: Incentives exit and tax filing calendar

In 2020, the Chinese government released a series of tax incentive policies to support businesses during the COVID-19 pandemic. (Refer to China and COVID-19 incentives: What businesses need to know). However, as 2021 begins, some of these incentives have now expired while the rest will remain effective throughout this year. It’s imperative for companies to be aware and prepared for these policy changes to help them with their tax planning. Below are key updates and deadlines related to tax filings and incentives for 2021.

Value-added tax (VAT)

Until Dec. 31, 2020, general taxpayers with cumulative 12 months’ sales under RMB 5 million could apply to switch to small-sized taxpayer option in order to enjoy lower VAT rates. Effective Jan. 1, 2021, general taxpayers will no longer be able to switch to the small-size taxpayer option.

Effective incentives:

• Reduced VAT rates for small-size taxpayers remains effective in 2021. This means 0% VAT for small-sized taxpayers in Hubei province and 1% rate for small-sized taxpayers in other regions throughout China. There hasn’t been any official announcement from the State Tax Administration (STA) regarding the policy due date yet.
• Small-sized taxpayers with monthly sales below RMB 100,000 or accumulated quarterly sales below RMB 300,000 can still enjoy full VAT exemption until Dec. 31, 2021.
• Some VAT incentives that have been in place since 2019 will continue through 2021. These incentives include tax returns of incremental tax credit reserves for qualified general taxpayers and a super deduction of input VAT for certain service industries.

Corporate income tax (CIT)

Businesses in industries that have been negatively impacted by the pandemic could extend their loss carryforward period from five years to eight for losses incurred in 2020. These industries include restaurants and catering services, transportation, film, tourism, and hospitality. Effective Jan. 1, 2021, the loss carryforward period for these industries has been restored to five years only. Small-sized low-profit businesses can now enjoy deferred CIT payments. Businesses that enjoyed CIT payment deferrals in 2020 need to ensure timely payment in the tax filing period due on Jan. 20, 2021.

Effective incentives:

• Small-sized low-profit businesses can still enjoy reduced CIT rates until Dec. 31, 2021, which is 5% for the portion of annual taxable income of less than or equal to RMB 1 million and 10% for the portion beyond RMB 1 million and less than or equal to RMB 3 million.

Export-related policy

In 2020, the STA and China Customs and Ministry of Finance issued a joint announcement on tariff and tax exemption of export goods returned due to the COVID-19 pandemic. For the goods declared for export between Jan. 1, to Dec. 31, 2020, which are to be shipped back to China intact within one year of export due to force majeure caused by the pandemic, the government will exempt import duty tax, import VAT, and consumption tax. Any duties and taxes levied at the time of export will be returned to the company. The tariff exemption policy is still valid for export goods shipped out in 2020 and returned to China in 2021 that falls into the one-year time frame.

Social security contribution

In 2020, the nationwide reduction or exemption of social security payments helped businesses to save on labor-related costs. Effective Jan. 1, 2021, these incentives expire in most provinces and cities, with the exception of a few regions:

• Xiamen city has announced the extension of 2020 social security reduction policies until the end of 2021.
• Guangdong province has issued a draft plan to extend the 2020 incentives to April 30, 2021, and to further extend the employer’s unemployment insurance payment reduction policy to the end of April 2022. The official announcement hasn’t been confirmed yet. 

To learn more about specific policies applicable to your organization, please contact our China tax team.

2021 tax filing deadlines

According to the STA announcement No. 242 for adjusted deadlines for tax filing in 2021, the regular monthly tax filing deadlines, which is the 15th of each month, will be adjusted in certain months based on the statutory public holidays in 2021. Businesses should keep a close eye on the adjusted schedules to avoid missing the tax filing deadlines.

Here’s a detailed list of the monthly tax filing deadlines in 2021:

• January: Postponed to January 20 due to public holiday on January 1 – 3
• February: Postponed to February 23 due to public holiday on February 11 – 17
• March: March 15 (original deadline)
• April: Postponed to April 20 due to public holiday on April 3 – 5
• May: Postponed to May 21 due to public holiday on May 1 – 5
• June: Postponed to June 18 due to public holiday on June 12 – 14
• July: July 15 (original deadline)
• August: Postponed to August 16 as August 15 is a Sunday
• September: September 15 (original deadline)
• October: Postponed to October 26 due to public holiday on October 1 – 7
• November: November 15 (original deadline)
• December: December 15 (original deadline)

Under special circumstances, regional tax bureaus may adjust the local tax filing deadlines after getting approval of the STA. Please feel free to contact our China tax team to learn about the regional tax filing schedules in 2021.