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Announcement of Service Innovation Pilot Programmes
On 14 February 2016, China’s State Council announced its plan to conduct pilot programmes for the innovative development of services in 10 cities and 5 new zones under direct control of the central government (“state-level zones”) over the next 2 years.
The 10 cities are Tianjin, Shanghai, Hainan, Shenzhen, Hangzhou, Wuhan, Guangzhou, Chengdu, Suzhou and Weihai, while the 5 new state-level zones are Harbin, Jiangbei (in Nanjing), Liangjiang (in Chongqing), Gui’an (in Guizhou) and Xixian (in Shaanxi).
One of the programmes involves the extension of preferential tax policies to advanced technological service enterprises (ATSEs) within the pilot areas. The scope of enterprises entitled to the 15% Corporate Income Tax (CIT) rate (reduced from the standard 25% rate) will be expanded beyond service outsourcing enterprises to include other high-tech and high value added service sectors as well. These enterprises are also allowed to use the 8% (of total employee expenses) deduction threshold for employee education expenses (under the CIT law, deductions for these expenses are generally limited to 2.5% of total employee expenses).
Apart from preferential tax policies, the government also offers other financial and administrative support such as financial subsidies for enterprises providing research and development (R&D), energy-saving, environmental protection and environmental services, which are urgently needed by China. Hence, service or trade enterprises that qualify for such government support should take advantage of it from financial and cost-efficiency perspectives.