Preferential corporate and individual income tax policies for qualified enterprises engaged in designated industries, domestic and overseas talents, and for Macao citizens working in the Guangdong-Macao In-Depth Cooperation Zone in Hengqin have been officially implemented. The Ministry of Finance of China and State Taxation Administration of China had released the policies, it was announced at a June 16 press conference.

Lei Wai Nong, director of the Cooperation Zone Executive Committee; deputy directors Nie Xinping, Niu Jing, and Su Kun, and chief accountant of Hengqin Taxation Bureau Zhang Huibing detailed the policy highlights and implementation measures.

Official implementation of the first batch of taxation policies by the country and Guangdong Province support development of the Hengqin Cooperation Zone, noted Lei Wai Nong. They provide policy support and benefits for Macao companies and citizens in Hengqin with a taxation environment similar to that of the SAR.

Accelerated implementation of preferential financial and tax policies in the Overall Development Plan inject strong impetus for the Cooperation Zone's long-term development

The Overall Development Plan for Construction of the Guangdong-Macao In-Depth Cooperation Zone in Hengqin, which was released in early September 2021, states that qualified industrial enterprises will enjoy a preferential corporate income tax rate of 15 percent, while the individual income tax rate for high-end and urgently needed talents in the zone will be capped at 15 percent.

The fundamental policies for corporate and individual income taxes play a significant role in accelerating construction of the Hengqin Cooperation Zone, noted Nie Xinping. The preferential individual income tax policies provide a similar taxation environment for Macao residents, which will strengthen the economic exchanges between enterprises and residents of the two regions and facilitate the integrated development of Hengqin and Macao. In addition, the measures will consolidate the industrial foundation for Macao's moderate economic diversification by benefitting the four key industries of sci-tech research and high-end manufacturing, traditional Chinese medicine along with other Macao signature businesses, industries spanning culture and tourism, conventions and exhibitions, and modern finance. The expanded scopes of beneficiaries will also attract more domestic and oversea talents to Hengqin, enhance the competitiveness of local enterprises, and boost employment.

Earlier this year, notices by the Department of Finance of Guangdong Province and Guangdong Provincial Tax Service of State Taxation Administration specified qualifications for enterprises and individuals in the Hengqin Cooperation Zone to enjoy tax reductions or exemptions, which will reduce the tax burden for eligible companies and individuals in the zone, narrow the differences in tax burden between Hengqin and Macao, facilitate the Cooperation Zone's industrial development, and enhance Macao's moderate diversified economic development.

Of note, the reduced rate of 15 percent for corporate income tax will attract more market entities, especially Macao-funded enterprises, to participate in the construction of the Cooperation Zone.

Meanwhile, the portion of individual income tax exceeding 15 percent for domestic and overseas talents in Hengqin will be exempted. Macao residents working in the zone will also be exempted the portion of their individual income tax burden exceeding Macao standards, while their tax burden in Macao shall be calculated with reference to relevant provisions of Macao's tax laws on occupational and supplementary income taxes. This is to facilitate Hengqin becoming a new home for Macao people to live and work, and lays a foundation for a new system of high-level integration and opening-up with Macao.

The year 2022 marks a key period for the in-depth and accelerated construction of the Hengqin Cooperation Zone, as well as a strategic-window period for the gradual release of policy dividends endowed by the Overall Development Plan and intensified settlement of industrial investments.

The Cooperation Zone will adhere to the principle of enhancing Macao's moderate economy diversity to construct a new home for Macao residents to live and work, an integrated new system with Macao featuring high-level opening-up, and new mechanism of collaboration and communication between Guangdong and Macao for the zone's management. It will also promote implementation of policies on tiered management, market access, financial support, and talent attraction, added Lei.

Corporate Income Tax Preferential Catalogue expanded to include nine categories of 150 items

Aiming to promote sci-tech research and high-end manufacturing, traditional Chinese medicine along with Macao signature businesses, and industries spanning culture and tourism, conventions and exhibitions, and modern finance, the Hengqin Cooperation Zone Corporate Income Tax Preferential Catalogue (2021 Edition) covers nine categories of 150 items such as integrated circuit design, AI products, and more, which became valid Jan 1, 2021.

In 2014, the Ministry of Finance of China and State Taxation Administration of China issued a preferential corporate income tax rate of 15 percent for encouraged industries in the former Hengqin New Area. The Preferential Catalogue included the tourism industry in 2019, covering six categories of 80 items with specified main business income accounting for over 70 percent of the enterprises' total.

Compared with the 2014 edition, the new corporate income tax catalogue includes all the encouraged industries and sectors facilitating Macao's moderate economic development, according to Su Kun. The policies also specify that the main business income should account for 60 percent of the enterprises' total, enabling more companies to be eligible for the policy dividends.

The new catalogue eyes attracting more Macao-funded companies and investment. An entire industrial chain from R&D and design to manufacturing for the hi-tech industry will be realized, while Macao's characteristic industries such as trade brokerage, agency, and service industries between the Chinese mainland and Macao and Portuguese-speaking countries are also included, aiming to strengthen the agglomeration of sci-tech innovation elements, Macao's signature industries, development of the culture, tourism, convention and exhibition industry, and construction of a financial service platform between China and Portuguese-speaking countries.

To encourage tourism, modern service, and high-tech enterprises in the Cooperation Zone to enhance their international competitiveness, their income from newly added overseas direct investment will be exempted from corporate income tax. Besides, one-time pre-tax deduction or accelerated depreciation is allowed according to different value ranges for capital expenditure of companies registered in Hengqin, which will help them save costs, expand investment, and promote industrial transformation and upgrades.

Focusing on "dual orientation" of industrial development and substantive operation, the qualified enterprises are required to conduct substantive operations, including setting up a management organization and implementing management for production, personnel, and accounting in the Cooperation Zone, explained Niu Jing.

The new edition of policies, valid from Jan 1, 2021, has been in seamless connection with the previous edition, and no deadline was set for policy implementation. Eligible enterprises are subject to the preferential policies under a "self-identification, enjoying the preferential policies upon application, and retention of relevant materials for future reference" mode without any handling procedures.

Scope of preferential individual income tax rates expanded; Macao residents can handle tax refunds online

In terms of implementation of preferential policies for individual income tax, the scope of beneficiaries has been extended to domestic and overseas high-caliber talents and urgently-needed talents in the Cooperation Zone with a preferential tax rate capped at 15 percent, aiming to attract more high-caliber personnel to Hengqin, said Zhang Huibing.

Compared to the previous application procedure for individual tax financial subsidies that was more complicated, a more convenient and efficient means of annual settlement without additional applications is adopted for taxpayers to enhance their sense of gain and happiness of working in Hengqin.

Macao residents working or engaged in businesses in the zone also benefit from the new tax policies. For instance, a Macao resident, who was only employed in Hengqin in 2021, earned a monthly wage of about MOP 20,000 (16,626 yuan, $2,474), which was equivalent to the middle income of Macao residents. His annual overall income was about 220,000 yuan ($32,736) calculated by 13 months. In accordance with the relevant provisions of the domestic individual income tax law, his individual income tax payable was about 14,000 yuan ($2,083) without considering tax relief. After application of the preferential policies, he only needs to pay individual income tax of about 2,300 yuan ($342), which is consistent with the corresponding Macao tax burden of this part of income.

Implementation of the preferential individual income tax policies for Macao residents in the Cooperation Zone is a new systematic arrangement exclusively for Macao people, which is also key to enrichment of the "One Country, Two Systems" practice and accelerated construction of a new home for Macao residents to live and work, said Su Kun.

According to statistics released on the Macao SAR Government Portal, Macao had a total population of 682,070 at the end of 2021. Along with accelerated Hengqin-Macao integration, more job opportunities will be created and hence a larger number of Macao citizens will enjoy the related preferential policies.

In addition, the Cooperation Zone will also develop an online auxiliary system for Macao taxpayers to calculate the tax amount deducted or exempted in line with the preferential iaindividual income tax policies, submit applications online, and receive tax reimbursements without paying an on-site visit to the taxation bureau.

To ensure smooth implementation of the policies, the Cooperation Zone has carried out talent identification through a preregistration system and sorted out the list of qualified Macao people and enterprises via data mapping. Eligible subjects for the preferential tax policies have been notified by specially assigned personnel.