Substantial Operation Requirement for Preferential CIT in Nansha
According to the Circular Regarding Preferential Corporate Income Tax Policies for Nansha District in Guangzhou (Caishui [2022] No. 40), from 1 January 2022 to 31 December 2026, qualified enterprises registered in the start-up areas of Nansha may enjoy a reduced corporate income tax (CIT) rate of 15%. The Circular also provides that qualified enterprises must carry out substantial operation, which means that the actual management authorities of the enterprise must be based in the start-up areas of Nansha and exercise substantial and comprehensive management and control over the production and operation, personnel, accounting, property, and other aspects of the enterprise.
On 31 May 2023, the Taxation Bureau, Finance Bureau, Market Regulatory Bureau and Comprehensive Administrative Law Enforcement Bureau of Nansha District jointly issued the Public Announcement Regarding Clarifications on the Relevant Issues of Preferential Corporate Income Tax Policies in the Start-up Areas of Nansha, which further clarifies the criteria for substantial operation. The forgoing announcement shall be implemented from 1 January 2022.
An enterprise cannot enjoy the preferential CIT policy if it is registered in the start-up areas of Nansha only. If the enterprise’s production and operation, personnel, finance, property etc. are not in the start-up areas of Nansha, it will not be considered to have substantial operations in the start-up areas of Nansha. The details are as follows:
- Production and Operation in the Start-up Areas of Nansha
(1) The enterprise shall have a fixed production and operation promises and necessary production and operation equipment and facilities in the start-up areas of Nansha, and the main production and operation promises is located in the start-up areas of Nansha, or the organization that exercises substantial and comprehensive management and control over the production and operation is based in the start-up areas of Nansha.
(2) The enterprise shall conclude relevant contracts in the name of the enterprise.
- Personnel in the Start-up Areas of Nansha
(1) The employees who meet the production and operation needs actually work in the start-up areas of Nansha, and their wages and salaries are paid through the bank account opened by the enterprise in the start-up areas of Nansha.
(2) According to the size of the enterprise and the number of its employees, the enterprise shall have at least 3 to 30 employees who pay social insurance such as basic pension insurance for at least 6 months in the start-up areas of Nansha in a tax year.
- Finance in the Start-up Areas of Nansha
(1) The accounting documents, accounting books, financial statements and other accounting archives of the enterprise are kept in the start-up areas of Nansha.
(2) The enterprise’s basic deposit account and bank account for main business settlement are opened in the start-up areas of Nansha.
- Property in the Start-up Areas of Nansha
The property that the enterprise has the ownership or right of use is actually used in the start-up areas of Nansha or the organization that exercises substantial and comprehensive management and control over the property is based in the start-up areas of Nansha, and the property shall match the production and operation of the enterprise.
If an enterprise registered in the start-up areas of Nansha establishes branches outside, but it maintains substantial and comprehensive management and control over each branch’s production and operation, personnel, finance, properties, and so on, then it shall be considered to have a substantial operation in the start-up areas of Nansha.
However, according to the official interpretation released by the Taxation Bureau, Finance Bureau, Market Regulatory Bureau and Comprehensive Administrative Law Enforcement Bureau of Nansha District, any enterprise falling into either one of the following situations shall be considered disqualified for substantial operations:
(1) only undertakes financial settlements, tax filings, invoicing functions for business outside the start-up areas of Nansha without production or operation functions; or
(2) the registered address is inconsistent with its actual business operation address and contact person of the enterprise cannot be reached or failed to provide its actual business address after accessed by the government authorities.
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