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Support for FIEs in China during the COVID-19 Outbreak

Posted by: Zhorea Garcia
Category: Business in Asia, Economy & Trade
Support for FIES during the COVID-19 Outbreak

China has lined up a variety of financial and regulatory support for foreign-invested enterprises (FIEs) amid the economic impact of the COVID-19 outbreak. The policy measures are expected to uplift foreign companies in the aspect of corporate finance, tax payments, and social security.

Take a look at our previous post about Policies Concerning Tax Payments amid COVID-19

To restore confidence among foreign investors, China also issued comprehensive measures toward foreign investment and other basic guarantees. Keep reading if you are interested to know how the measures can help you and your business.

Tax and cost reduction for all enterprises

Tax exemption

As the epicenter of the virus outbreak, Hubei province gets the most support from the Chinese government. According to the State Council announcement on February 26, 2020, all enterprises especially small businesses are exempt from VAT for three months. From March 1 to May 30, small-scale enterprises in Hubei are VAT-free. On the other hand, enterprises in other regions get to pay a reduced rate from 3% to 1%.

Furthermore, individual businesses, sole proprietorships, and partnerships in Hubei will not levy a personal income tax. This applies when issuing value-added tax invoices for freight transportation services.

Both local and foreign companies may also benefit from special credit lines and preferential interest rates from commercial banks.

Cost reduction

The National Development and Reform Commission has reduced the corporate cost for electricity. Companies that could not resume normal work operations may apply for an electric capacity reduction, suspension, and recovery.

The Ministry of Transport also released a circular reducing the service charge for port services. From March 1 to June 30, 2020, companies will get 20% reduced fees for two government port services. These include service charge standards for cargo administration and port facility security. The ministry also advised port operators to offer discounts and exemptions, especially to small businesses for storage yard usage.

Moreover, the customs bureau has reduced customs clearance costs for enterprises with imported goods. At the same time, it has considered late payments and extended the validity of write-off and other customs procedures.

Financial support on loans and social security

Loan support

China’s NDRC also encouraged good credit-scored companies to provide liquidity support for small enterprises by issuing additional bonds. Big enterprises with high-quality assets and good operation of fund-raising projects are also severely affected by the epidemic. Thus, they can also apply for the issuance of new corporate bonds specifically for the repayment of the principal and interest of corporate bonds due within 2020. This means that they can be able to pay their debt dues with maturity this year.

With the loan provision, all banks are instructed to optimize their financial credit services, extend loan terms and reduce fees and interests. From January 25 to June 30, 2020, the banking industry will arrange a deferred repayment period for loan interests. Special arrangements will be provided for enterprises located in Hubei province. Thus, especially SMEs can benefit from the reduction of financial costs by more than 1% from the previous year’s average.

Social security

Meanwhile, the Chinese government also endeavored to reduce social security contributions for many enterprises.

Read our previous post about Enterprises to Save from Social Insurance Exemptions

Besides that, foreign enterprises can reduce the payment of medical insurance fees by 50% and delay payments for not more than 5 months.

Foreign investment-related policies

To allow a smooth resumption of production, the Ministry of Commerce also released measures to strengthen services to foreign companies. According to the notice, foreign enterprises that produce protective equipment against the epidemic will get special services in purchasing supplies. The ministry also guaranteed support for large foreign investment projects in terms of project construction and other promotional activities.

To stabilize foreign trade, the local commerce authorities will guide foreign enterprises to make full use of the export credit insurance policy. This includes increasing risk tolerance, especially of small, medium and micro foreign trade enterprises. Further, all business organizations under the China Export Credit Insurance Corporation are encouraged to reduce insurance premium rates and delay payments reasonably.

More importantly, the government ensured open access to an expanded market for foreign investors. It will also accelerate the reduction of the negative list of foreign investment in China and the Pilot Free Trade Zone. Major exhibition platforms such as the China International Fair for Investment and Trade (CIFTIT) will also be given special attention to help with investment promotion.

Revision of the catalogue of industries and reduction of the Negative list

From February 2 to April 18, 2020, MOFCOM will solicit public opinions for the revision of the catalog of industries for foreign investments. The proposed revision includes a tax exemption for the import of equipment for self-use and preferential corporate income tax rate of 15%.

Furthermore, the national government also released a circular concerning the use of “special funds” intended for foreign trade development and cooperation. It also promised to accelerate the further reduction of the Negative list for foreign investors in the country.

Other basic guarantees

Other concerned departments also released measures to help enterprises. The Ministry of Housing and Urban-Rural Development approved the extension of the qualification period for construction engineering enterprises. Enterprises with validity period from March 1 to June 30, 2020, can extend their qualification until July 31, 2020.

The Ministry of Justice will also reduce and exempt enterprises from paying for legal services such as notarization fees. Especially, the ministry vowed to provide notarization services related to the resumption of work and production. These include debt repayment, capital turnover, expansion of financing and other difficulties faced by enterprises.

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Author: Zhorea Garcia

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