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China – Local Preferential Policies Relaxed.

26 May, 2015

 

Late last year, China set out stringent requirements in “Circular 62” on cancelling many local preferential policies in China.  We examined this development in a previous article.

 

Perhaps as a response to significant concern among foreign investors, China’s State Council has now relaxed its previous requirements, with certain local preferential policies being allowed to continue. The relaxation was issued in the Circular on Several Matters related to Tax Incentives and Other Preferential Policies (“Circular 25”) on 10 May 2015.

 

The main relaxations under Circular 25 are as follows:

 

No.

Item

Circular 62

Circular 25

1 Suspension from implementation All illegitimate preferential policies were to be suspended by 1 December 2014 Existing preferential policies should continue to be implemented within the validity period of each; if there is no validity period, a transitional period should be set
2 Existing preferential policies agreed with enterprises Preferential policies granted via contracts, agreements, memorandums, meeting minutes and “case-by-case” replies to an enterprise from any governmental authority are within the scope of review and revocation Existing preferential policies agreed in contracts with enterprises should remain valid
3 Level of approval authority to formulate new preferential policies No preferential policies relating to tax revenue or fiscal revenue should be formulated except in accordance with existing policies or as approved by the State Council; no preferential fiscal expenditure policy may be implemented without State Council approval Preferential policies related to tax revenue, or fiscal revenue established with the approval of central authorities, remain subject to State Council approval; other preferential policies are subject to the approval of the local government or relevant department
4 Payment-linked preferential fiscal expenditure policies All existing payment-linked preferential fiscal expenditure policies were to be cancelled immediately Fiscal expenditure of the local authorities should generally not be linked to the payment of taxes or other amounts by the enterprise
5 Reporting and clean-up of illegitimate local preferential policies Local governments must report their preferential policies to the State Council by 31 March 2015 The clean-up of illegitimate preferential policies under Circular 62 is suspended

 

herbert smith Freehills

 

For further information, please contact:

 

Nanda Lau, Partner, Herbert Smith Freehills

nanda.lau@hsf.com

 

Karen Ip, Partner, Herbert Smith Freehills

karen.ip@hsf.com

 

Ning Shen, Herbert Smith Freehills

ning.shen@hsf.com

 

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