Questions & Answers with Regard to Government Measures Related to the COVID Outbreak in China
Disclaimer: The answers given below are based on our best knowledge at the time when they were issued. They can only provide a rough overview of the currently announced measures and cannot provide a complete picture of all government measures, which may vary regionally. Further changes and updates should also be expected.
Q: Is there any compensation by the government for the loss of “man-power” caused by quarantine measures and mandatory closures of companies?
A: The resolution of the executive meeting of the State Council held on 18th February, stated that in order to reduce the impact of the epidemic on the enterprises, especially the micro, small and medium-sized enterprises, it is decided to reduce the specific social insurance, so that there will be a buffer period after the enterprises resume production.
- Small and medium-sized enterprises in China (regions other than Hubei Province) will be exempt from the monthly contributions to endowment insurance, unemployment insurance and industrial injury insurance in the period February to June 2020.
- The contribution rate for the mandatory medical insurance for the employees will be temporarily reduced by 0.5 percentage points in 2020.
- After the containment measures for the COVID outbreak are relieved, payments of social security contributions can be deferred up to three months.
- The annual adjustment of the social security base will be postponed to 1st July 2020.
Small and medium-sized enterprises having rented premises from state-owned enterprises (including all kinds of development zones and industrial parks, entrepreneurial bases, technology business incubators, etc.) for their production and business activities will be exempt from rental payments in February and March.
If enterprises affected by the epidemic organize any kind of online training for employees (including external personnel working in the enterprise) during the closing period, such training shall be subsidized by the special funds of the respective district for local education and shall be subsidized in the amount of 95% of the actual training cost.
Q: Do companies have to pay salaries during the closing period caused by the COVID containment measures?
A: For enterprises closed for up to one month, salaries must be paid according to the amount regulated in labor contracts.
For enterprise closed for longer than one month,
- if the employee works during this period, salary can be discussed according to the actual situation, but cannot be lower than local minimum wage (standard stipulated by Shanghai Municipal Government, in 2020, it’s CNY 2,020/month).
- if the employee does not work during this period, the enterprise shall pay a cost of living subsidy to the employee, not lower than the local minimum living standard (in Shanghai CNY 880/month).
Q: Can non-working time caused by the COVID containment measures be deducted from the employee’s annual leave?
A: If employees cannot return to work after official work resumption date (10 February 2020) the following two cases need to be considered:
- Employees under medical quarantine
If an Employee is under quarantine due to close contacts with a coronavirus infected person, or returns from severely affected areas (as stipulated by the government, e.g. Hubei province), the quarantine period cannot be offset against the employee’s annual leave entitlement.
- If the absence is cause by other factors such as various containment measures taken by different regions, the company can request that the days of absence are deducted from the employee’s annual leave.
Q: Will the government grant tax relief?
1) Preferential tax policies to key material production enterprises for epidemic prevention and control, and enterprises in industries of transportation, catering, accommodation and tourism (cited from the Announcement of the Ministry of Finance, the State Administration of Taxation No. 8, 2020):
- Newly purchased equipment purchased by enterprises for the manufacturing of key materials for epidemic prevention and control and measures for the expansion of production capacity for such materials can be included in the current cost and deducted before the enterprise income tax.
- Enterprises manufacturing key material production for epidemic prevention and control can apply to the competent tax authorities on a monthly basis for a full refund of the incremental VAT amount.
- VAT shall be exempted for the income obtained from the transportation of key materials for epidemic prevention and control.
- The maximum carry-forward period for losses incurred by enterprises in transportation, catering, accommodation and tourism industries, which are severely affected by the epidemic in 2020, will be extended from 5 years to 8 years.
2) Preferential tax policies to the donation (cited from the Announcement of the Ministry of Finance, the State Administration of Taxation No. 9, 2020 and the Announcement of the Ministry of Finance No.6, 2020):
- Enterprises and individuals’ donations via public welfare social organizations or state organs at or above the county level, and the cash and articles that are used for coping with the coronavirus infection are allowed to be deducted in full when calculating the taxable income.
- Donations by enterprises and individuals directly to hospitals responsible for epidemic prevention and control are allowed to be deducted in full when calculating the taxable income.
- Donations of products produced by the enterprises and individual businesses, through the public welfare social organizations and the state organs at the county level or above, or directly to the hospitals responsible for the epidemic prevention and control, shall be exempted from VAT, consumption tax, city maintenance and construction tax, education additional.
- Imported materials donated for epidemic prevention and control shall be exempted from import tariff, import value-added tax and consumption tax.
3) Preferential tax policy to materials distributed from enterprise to employees (cited from the Announcement of the Ministry of Finance, the State Administration of Taxation No. 10, 2020):
- Medicines, medical supplies and protective articles (excluding cash) distributed by the enterprises to employees for the prevention of coronavirus infection shall not be included in their wages and salaries, and shall be exempt from IIT.
- Expenses for medicines, medical supplies and protective articles purchased for business use with valid VAT invoices can be treated as tax deductible and VAT deductible company expenses. Otherwise, such expenses shall be recorded as welfare expenses and can be deducted before enterprise income tax.