The October 2013 issue of Baker & McKenzie’s China Tax Monthly reported that the tax incentives for the China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ) provided in Guo Fa [2013] No. 38 were just policy directives and open to interpretation in exactly how the tax authorities would turn these directives into detailed rules. Recently, these policy directives became concrete rules on tax incentives for investment-related capital gains under Cai Shui [2013] No. 91 (notice 91).
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Notice 91 permits a company incorporated in the Shanghai FTZ to pay in equal instalments over a period of up to five years the income tax due on capital gains derived from transfers of non-monetary assets in designated corporate restructurings.
This effectively amounts to a tax deferral treatment. To qualify for this tax deferral treatment, the transferor must be incorporated and operating in the Shanghai FTZ, and must calculate its enterprise income tax based on actual profits, rather than deemed profits. For the purpose of notice 91, a designated corporate restructuring refers to: i) the incorporation of a new company through the contribution of non-monetary assets; ii) a share acquisition in exchange for non-monetary assets; or iii) an asset acquisition in exchange for non-monetary assets.
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Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mailing Zhang Danian (Shanghai) at: danian.zhang@bakermckenzie.com
