China Offers Tax Lifeline to Exporting Companies in Special Zones

China is offering tax breaks to companies in special economic zones to ease the financial impact of the coronavirus outbreak.

Foreign and domestic firms in the zones will be temporarily exempt from paying interest on delayed import tax payments between April 15 and December 31. The measure removes a disincentive for exporting firms to sell to the domestic market.

“The gesture will help companies fight the impact of the Covid 19 virus,” said Elizabeth Shi, senior consultant at Rouse Consultancy in Shanghai.

The government is also expanding its pilot project allowing businesses based in the zones to sell into the domestic market to cover all comprehensive bonded zones across the country, according to an announcement Wednesday on the Ministry of Finance website.

Companies in comprehensive business zones don’t pay import duty or value-added tax on goods upon import, on the condition that all final products are exported. However, if they subsequently opt to sell into the domestic market, they normally need to make up the import duty and VAT on the goods and raw materials that they have purchased, as well as late-payment interest. That interest payment is what has been temporarily suspended, said Shi.

This, along with the move to allow companies in such zones across the country to have the option to sell domestically, could prove a “lifeline” to companies, by helping them divert business towards China’s domestic market, she added.

Previously only a few of the zones, which are one of several types of special economic area zones that offer financial incentives to companies based there, allowed firms to sell to the domestic market.