Dec. 12 – China’s Ministry of Finance and the State Administration of Taxation jointly issued the “Circular on Corporate Income Tax Policies for Outbound Investment with Non-monetary Assets and Other Asset Restructuring Transactions by Enterprises in the China (Shanghai) Free Trade Zone (Caishui  No. 91, hereinafter referred to as ‘Circular’)” on November 15, which allows enterprises in the Shanghai Free Trade Zone (Shanghai FTZ) to defer corporate income tax payment. Detailed information can be found below.
For the purpose of the Circular, outbound investment with non-monetary assets and other asset restructuring transactions refer to the following activities :
- Establishing a company through capital contribution with non-monetary assets;
- Making capital contribution with non-monetary assets;
- Equity acquisition; and
- Asset acquisition.
Specifically, the above-mentioned equity and asset acquisition activities shall meet the conditions stipulated in the Circular on Certain Issues Concerning the Treatment of Corporate Income Tax in Enterprise Restructuring, which lays out the following definition for such activities:
- Equity acquisition refers to a transaction where an enterprise acquires the equities of another enterprise so as to take control over the latter; and
- Asset acquisition refers to a transaction where an enterprise purchases the substantive operating assets of another enterprise.
The Circular provides that, with regard to the asset appreciation arising from outbound investment with non-monetary assets or other asset restructuring transactions, enterprises registered in the Shanghai FTZ may pay corporate income tax for the gains from the transfer of non-monetary assets by installments within five years .