The Ministry of Finance and the State Administration of Taxation issued Circular on Issues Concerning the Recognition and Administration of Tax-exempt Qualifications of Non-profit Organizations (referred to as Cai Shui [2018] No.13) on 7th February 2018 and it took effective on 1st Jan 2018. It is the second update to the taxation matters regarding to the recognition and administration of tax-exempt qualification of non-profit organization. Compared with the former regulations (Cai Shui [2009] No.122, and Cai Shui [2014] No. 13), AC find below difference in this new regulation. 

1.Update the recognition conditions for the tax-exempt qualification;

?The average level of wages and salaries paid to its employees shall be up to twice the average wage of all similar organizations in the identical industry located in areas at or above the prefecture level at the place of tax registration.

?The annual inspection requirement has been cancelled. 

2.Update the materials for the application of the tax exemption;

?The special report of wages and salaries paid in the preceding year is required to be provided;

?Materials conforms to the development of causes specified in the country’s policies or about its non-profit activities of the preceding year is required to be provided;

?Annual inspection result is no longer to be provided. 

3.Extend the time limit for the re-examination;

The non-profit organization shall file an application for re-examination within six months after the expiry of the tax-exempt qualification.

4.It is cancelled that “The competent taxation authority shall review the tax return and relevant information submitted by a non-profit organization”; 

5.Update the conditions for cancellation of the tax exemption;

ADD:

?Where the registration authority finds in the follow-up administration that the non-profit organization does not satisfy the applicable laws and regulations and the state policies;

 ?Where the non-profit organization is included by the registration authority into the list of subjects with serious violations and dishonesty;

?Where the non-profit organization is rated as Class C or Class D in respect of its tax credit rating;

DELETE:

?Fail to pass the annual inspection;

?It has been punished by the taxation authority due to violation of the Law of the Administration of Tax Levying and the Implementing Rules; 

6.Improve and strengthen the ongoing and post administration;

?Where its tax-exempt qualification is cancelled as it falls under the circumstance specified in the sixth item (where the non-profit organization engages in illegal political activities), the finance and tax authorities will no longer accept its application for obtaining the qualification thereafter;

?A non-profit organization shall fulfill its tax obligations according to the law after its tax-exempt qualification is cancelled; where it fails to pay tax according to the law, the competent tax authority shall pursue the tax due from the year when the organization falls under the circumstance which triggers the cancellation of its tax-exempt qualification;

?The financial department and the tax bureau shall bear the responsibility if it is found any illegal activities during the recognition of the tax-exempt qualification. 

7. “Religious activities or religious institute” are added to the subject who has the qualification for applying the tax exemption.