Policy Topics on "Two Zones" (II)

Preferential benefits for enterprises

Transfer of equities held for more than 3 years

If the income from transfer of equities held for more than 3 years accounts for over 50% of the total annual income from equity transfer, annual income tax for the enterprise shall be reduced by half of the tax payable by its individual shareholders at the end of the year. The exempted tax shall be calculated as follows:

The amount exempted from enterprise income tax = (shareholding ratio of individual shareholders at the end of the year × amount of enterprise income tax payable that year) ÷ 2

Example

For a corporate venture in Beijing, natural persons hold 10% of the shares of the enterprise. As the annual income from enterprise equity transfers in 2020 was CNY 10 million, of which CNY 6 million were from transfer of equities held for over 3 years (exceeding 50% of the annual income from enterprise equity transfer), the enterprise would be eligible for the preferential 50% tax policy. If the enterprise’s corporate income tax payable in 2020 was CNY 1 million, the corporate income tax payable by individual shareholders would be 10% × CNY 1,000,000= CNY 100,000. In accordance with regulations, the tax to be reduced would be: 10% × CNY 1,000,000 ÷ 2 = CNY 50,000. In this case, the corporate income tax payable by individual shareholders would be reduced by 50% compared with that before policy implementation.

Transfer of equities held for more than 5 years

If the income from transfer of equities held for more than 5 years accounts for over 50% of the total annual income from equity transfer, annual income tax for the enterprise shall be reduced by half of the tax payable by its individual shareholders at the end of the year. The exempted tax shall be calculated as follows:

The amount exempted from enterprise income tax = shareholding ratio of individual shareholders at the end of the year ×amount of enterprise income tax payable in this year

Example

For a corporate venture in Beijing, natural persons hold 10% of the shares of the enterprise. As the annual income from enterprise equity transfers in 2020 was CNY 10 million, which CNY 6 million was from transfer of equities held for over 5 years (exceeding 50% of the annual income from enterprise equity transfer), the enterprise would be eligible for the preferential tax exemption policy. If the enterprise’s corporate income tax payable in 2020 was CNY 1 million, the corporate income tax payable by individual shareholders would be 10% × CNY 1,000,000 = CNY 100,000. In accordance with regulations, the tax to be reduced would be: 10% × CNY 1,000,000 = CNY 100,000. In this case, the corporate income tax payable by individual shareholders would be reduced by100% compared with that before the implementation of the policy.

Conditions required for eligible enterprises

Qualified equity transfer from January 1, 2020.
Equity investments madebefore January 1, 2020, where the income from equity transfers within the specified execution period meets the conditions, shall be eligible for the preferential policy.

Corporate venture capital enterprises that simultaneously meet all of the following conditions:

Any resident enterprise registered at Zhongguancun National Innovation Demonstration Zone in Beijing and subject to CIT based on the actual financial statements;
Any venture capital enterprise that conforms to the requirements of the Interim Measures for the Administration of Venture Capital Enterprises (Order No. 39 of the National Development and Reform Commission and other departments) or the Interim Measures for the Supervision and Administration of Private Investment Funds (Order No. 105 of China Securities Regulatory Commission), duly put on record and operated in a standardized manner.

How to apply

An enterprise shall identify its own eligibility and apply for preferential policies while keeping relevant materials in file for future inspection. An enterprise shall, according to its operation and relevant tax provisions, determine on its own whether or not meets the stipulated conditions for preferential policies. Eligible enterprises may calculate the amount of tax to be exempted on their own at the time of pre-payment declaration, and fill out a tax return of enterprise income tax for preferential benefits.

For specific requirements, please refer to the Notice of the Ministry of Finance, State Taxation Administration, National Development and Reform Commission, and China Securities Regulatory Commission on Policies Pertaining to Pilot Projects of Corporate Income Tax for Corporate-Type Venture Capital Enterprises in Zhongguancun Science Park (Cai Shui [2020] 63)