Investments and other subsidies
Corporate Income Tax (CIT)
- A reduced CIT rate of 15 percent is granted to qualified advanced and new technology enterprises. Applicable fields include solar energy, wind energy, biomaterial energy, and geothermal energy.
- The Clean Development Mechanism (CDM) Fund is exempted from CIT on the following income:
- the portion of Carbon Emissions Reductions (CERs) proceeds that are shared by the government
- donations from international financial organizations
- interest income derived from capital deposit or national bonds
- donations from domestic and foreign entities or individuals.
- Enterprises operating CDM projects are allowed to deduct before CIT the CER proceeds that are shared by the government.
- Three years CIT exemption is followed by a 50 percent reduction for another three years of the standard CIT rate for income derived from specified CDM projects. These projects include hydrofluorocarbons (HFC), perfluorocarbons (PFC), and nitrous oxide (N2O) projects, starting from the year in which the revenue from the transfer of greenhouse gas (GHG) emission reductions is first received. According to the new Administrative Measures Governing the Operation of CDM Projects in 2011, any project companies, except for the 41 state-owned enterprises listed, shall apply for approval with the National Development and Reform Commission (NDRC) at the provincial level first. Then the commission would submit preliminary review opinions to the central NDRC for further review. (According to the Old Measures, all CDM project companies applied directly to the central NDRC for approval.) The New Measure also changes the sharing percentage in the proceeds from the transfer of emission reductions units between the government and companies involved in N2O and PFC projects.
- Three years CIT exemption is followed by a 50 percent reduction for another three years of the standard CIT rate for income derived from qualified environmental protection and energy or water conservation projects. This reduction starts from the year in which the first revenue is generated. Applicable fields include biomaterial energy, synergistic development and utilization of methane, and technological innovation in energy conservation and emission.
- Ten percent of the amount invested in the qualified equipment is credited against CIT payable for the current year, with any unutilized investment credit eligible to be carried forward for five tax years. This applies only if such equipment is qualified as special equipment related to environmental protection, energy, or water conservation and production safety.
- Only 90 percent of the revenue derived from the transaction is taken into account for CIT computation purposes. This applies only if such revenue is derived from the use of specific resources associated with the synergistic utilization of resources as raw materials in the production of goods.
- A 150 percent deduction is given for qualified R&D expenses incurred for CIT computation purposes.
Value Added Tax (VAT)
- 50 percent refund of VAT is paid on the sale of wind power.
- 100 percent refund of VAT is paid on the sale of biodiesel oil generated by the utilization of abandoned-animal fat and vegetable oil.
- The portion of VAT paid in excess of 8 percent shall be refunded on the sale of self-produced electricity by hydroelectric power station with 1 million KW installed capacity from 1 January 2013 to 31 December 2015, while the portion of VAT paid in excess of 12 percent shall be refunded on the sale of self-produced electricity by hydroelectric power station with 1 million KW installed capacity from 1 January 2016 to 31 December 2017.
- VAT paid on the sale of goods produced from recycled materials or waste residuals is refundable.
- VAT is exempt on the sale of self-produced goods including recycled water, qualified powdered rubber made out of obsolete tires, re-trodden tires and certain construction materials made from 30 percent or more of waste residuals.
- VAT is exempt for sewage treatment, garbage disposal and sludge treatment services.
In November 2011, the government authority expanded the scope of sales of self-produced goods/products by using the prescribed recycled materials, waste residuals and agricultural residuals that are eligible for VAT refund at rates ranging from 50 to 100 percent of the VAT payable. The rates may vary depending on the nature of recycled materials or residuals utilized.
As of 1 April 2013, the taxpayer is further required to meet the local/national pollutant emission requirements in order to receive the VAT incentive for self-produced goods/ products from recycled materials.
Vehicle and Vessel Tax
As of 1 January 2012, qualified energy efficient vehicles and vessels enjoy a 50 percent Vehicle and Vessel Tax deduction. Qualified new energy (mainly electric) vehicles and vessels may be exempted from Vehicle and Vessel Taxes.
Financial subsidies and tax incentives available to energy performance contracting (EPC) projects
- Financial subsidies are granted by the central and provincial government agencies respectively. The standard rate of subsidies at the central level is Chinese yuan (CNY) 240 per ton of standard coal saved. The standard rate at the provincial level is no less than CNY60 per ton of standard coal saved. The NDRC and Ministry of Finance jointly announce the qualified energy service companies (ESCO). These companies can apply for financial subsidies on energy preservation management contracts. The list of qualified ESCOs is updated on a regular basis. These financial subsidies are rolled out under the jurisdiction of Energy Performance Contracting (EPC), and they should be taxable for CIT purposes.
- A qualified ESCO taking part in an EPC project will be eligible for a tax exemption in the first three years and a tax reduction by half (an effective rate of 12.5 percent) over the following 3 years, starting from the tax year in which the revenue from the project first arises. Where an EPC project lasts less than six years, the ESCO shall be entitled to the incentives based on the actual project period.
- An enterprise that invests in special equipment for energy conservation will obtain a credit against its tax payable that equals 10 percent of the investment amount in the year in which the investment is made. Where there is not sufficient tax payable to absorb the credit in the year, the excess credit may be carried forward up to five tax years.
- A qualified ESCO taking part in an EPC project will be provisionally exempt from the Business Tax/ VAT on revenues received from the project.
- A qualified ESCO taking part in an EPC project will be provisionally exempt from the VAT on the transfer to the energy user of goods related to the project.
- When, at the end of the term of the energy management contract (EMC), the ESCO transfers to the energy user the assets that have materialized in the course of executing the EPC project, the ESCO can do so as if these assets had been fully depreciated or amortized for CIT purposes. In the same way, when the energy user receives the project assets from the ESCO, the energy user can do so as if these assets had been so depreciated or amortized.
- When the ESCO transfers the project assets to the energy user at the end of the term of the EMC, the ESCO will not have to recognize any revenue to take into account the contributions the energy user has made to the price of the assets.
- An energy user in an EPC project can deduct reasonable expenses actually incurred in accordance with the EMC as, and when, they are incurred for CIT purposes. There is no need to differentiate between service fees and asset prices in claiming such a deduction.
With the revised Renewable Energy Law that came into effect in April 2010, the State Bureau of Energy and other departments of the State Council will promulgate guidelines on the full purchase of electricity generated by new energies. According to the revised law, the price of on-grid electricity generated by renewable energies shall be determined by the competent price department of the State Council. The council will consider the difference in areas and the electricity generated by different types of renewable energy companies.
Special funds are made available to facilitate the development of renewable energy relating to the following activities:
- scientific and technical research, standardization processes and model engineering projects
- renewable energy projects in rural and pastoral areas
- construction of stand-alone electricity generation system in remote areas and islands
- renewable energy resource surveys, evaluation and construction of information systems
- localization of manufacturing facilities used in the renewable energy sector.
The special funds may also be deployed as compensation for the higher costs charged by renewable energy plants and indirectly borne by the grid for the purchase of electricity from these plants. Applicants may apply for such funds with the local finance bureaus and the government agencies in charge of renewable energy projects.
Financial subsidies for energy conservation technologies improvement
During the State’s 12th Five-Year Plan period, the central government will continue to arrange special subsidies to support the projects to improve the energy conservation technologies.
In order to achieve optimum energy conservation goals, the financial subsidies are closely linked to the quantity of energy conserved on a project basis. The project companies shall be granted financial subsidies if they fully complete the expected goals of energy conservation.
For projects in the eastern regions of China, companies may be granted a one-time reward subsidy of CNY240 per ton of standard coal based on the annual energy consumption after the completion of the projects. For projects in the central and western regions of China, a one-time reward subsidy of CNY300 per ton of standard coal may be granted.
Financial subsidies for the development of “Model County for Green Energy “ program
To promote the “Model County for Green Energy” program, financial subsidies are granted to the following qualified projects in rural areas:
- concentrated provision of methane gas projects
- biomass gasification projects
- biomass briquette projects
- other projects that develop and utilize renewable energies
- rural energy service system.
The amount of subsidies granted is subject to a comprehensive evaluation with reference to the completed investment by the applicant, the level of green energy productivity and the number of users.
The guidelines for quotas in the renewable energy sector have been included in the work plan of the State Bureau of Energy and are expected to be issued by 2013.