After more than two long and frustrating months, Shanghai’s tight lockdown has finally lifted. As China’s zero-Covid policy has been taking its toll on businesses and individuals alike, the local government launched an Action Plan in late May, aimed at re-boosting the city’s economy. The Plan introduces 50 support measures in eight areas, including the resumption of work, tax liabilities and eligibility for exemptions, operations costs, subsidies, foreign investment encouragement, trade stabilization, etc.
The following post details the main support measures available for SMEs in Shanghai, as published by the local authorities. Note that at this stage, policies are still being formalized, and soon we’ll be able to tell how they are actually implemented on the ground.
Guidelines for resumption of work
Starting from June 1st, companies are no longer required to get approval for resuming work and/or manufacturing. Each business can arrange work and office hours in accordance with the COVID-19 rules of their locality, saving the time and hassle that come with the lengthy application process.
Tax reduction & refund
The monthly VAT refund policy rolled out in April 2022 has now been expanded to six industry categories. Previously this relief applied to SMEs in the advanced manufacturing sectors only; now, other qualified industries include electricity & gas, software & ICT, ecological and environmental protection, scientific R&D, transport & logistics. This measure joins the VAT exemption relief for small-scale taxpayers that has been in effect since April. Learn more on VAT refund in China.
It’s important to remember that companies are also eligible for a reduced Corporate Income Tax rate. That is to say, companies that generate no more than 1 million RMB in profit are taxed 2.5% (valid until December 31st, 2022) on said profits. In addition, companies that generate annual revenues of one to three million RMB are taxed 5% rate (valid until December 31st, 2024). Read more on tax incentives in China in 2022.
Another policy that has been extended until the end of 2024 is the six taxes and two fees reduction. This policy grants eligible small-scale taxpayers a reduced tax rate within a range of 50% in the following tax brackets: Resource Tax, City Construction Tax, Real Estate Tax, Urban Land Use Tax, Stamp Duty, Farmland Occupation Tax, Education Surcharge, and Local Education Surcharge. It’s worth mentioning that companies are allowed to enjoy several preferential tax treatments simultaneously.
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Rent payment exemptions
SMEs that rent offices in state-owned properties will be exempt from rent payments for up to six months regardless of whether the epidemic has impacted their business. Landlords who rent their property to businesses will be incentivized to reduce the rent payments for their tenants, by a very handsome state-backed subsidy of 30% of the total rent covered.
Utility costs discounts
Companies that conduct their business operations from office buildings in Shanghai (non-resident users) can enjoy up to a 10% discount on utility costs such as water, electricity, and gas. These companies also won’t be charged for excessive water usage during 2022, and utilities won’t be cut off in case of failure to pay during the epidemic containment period.
As for resident users – companies and individuals in residential buildings are advised to check how the building is registered in the local tax bureau office. Sometimes residential buildings that are partially used for residence and partially for commercial activity are defined as “office buildings” meaning this support measure may apply to them as well.
Deferment of social benefits payment
Companies in industries heavily impacted by the epidemic (e.g., catering, tourism, aviation, retail, hospitality, etc.) are eligible for deferment of their employee’s social insurance payments. For instance, the contribution to employees’ pension and medical insurance can be deferred until December 2022. Also, the contribution to employees’ unemployment and work-related injury insurances can be deferred by up to one year.
The deferment of the housing provident insurance, which is applicable for Chinese employees only, will remain in effect until the end of the year, and it can be obtained upon a formal application process.
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HR-related support
Companies hard-hit by the epidemic are also eligible for financial incentives given to support employment and staff training. For instance, to encourage continuous employment, the government offers a subsidy of 600 RMB per worker, for companies that won’t lay off their staff. This subsidy can reach a maximum amount of three million RMB per company. For newly recruited staff members, who were unemployed for over three months in 2022, companies will be eligible for a one-time grant of 2,000 RMB. Subsidies are also available for online vocational staff training. More on HR services in China.
Shanghai is the bloodline of China’s economy, and there’s no doubt that investors, business owners, and employees inside and outside of China are eager to reinvigorate the movement of business in the city once again. That said, while the Shanghai government is actively working to boost local financial activity, the preferential policies and incentives will be granted on a case-by-case basis, following compliance with several conditions.
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