China seeks to bolster education sector through tax incentives

Source: Woodburn Accountants & Advisors

With over 290 million students and 18 million teachers, China has the world’s largest education system. The Chinese government is looking to bolster this sector through a series of tax incentives for businesses and organizations within the realm of schooling.

According to the Ministry of Education, there were 529,000 schools in the country in 2021.

In 2019, the State Council issued a blueprint for the country’s education development in the coming decade, called China’s Education Modernization 2035. This plan’s objective is to establish a modern education system of lifelong learning with universal quality pre-school education, balanced compulsory education, enhanced vocational education, and more competitive higher education.

Last June, China’s State Taxation Administration (STA) issued a comprehensive guidance document outlining several currently effective tax reliefs designed to aid the growth of the education sector.

The Guidance on Preferential Tax Policies to Support the Development of Education (the Guidance), lists 28 preferential tax policies supporting the development of this area. They can be categorized into three types:
  1. Tax incentives supporting various education and teaching activities;
  2. Tax incentives reducing the operating costs of educational institutions; and
  3. Tax incentives encouraging social forces to actively invest in education.
Current policies in China encourage investment in vocational education. The for-profit tutoring sector has been at an all-time low due to the government’s efforts to reform its education system and ease the burden on families and students.

In May this year, a wholly foreign-funded vocational training institution was established in Beijing, which confirms China’s commitment to opening the vocational training industry to foreign direct investment (FDI).

Foreign businesses interested in China’s education sector can benefit from this new opportunity and leverage potential tax incentives to reduce operating costs.

China’s Tax Incentives to Support Education Sector:
  • Tax incentives for supporting all kinds of educational and teaching activities provided by schools engaged in academic education are exempt from value-added tax (VAT).
  • Schools (government institutions of higher, secondary, and primary) engaged in academic education are exempt from VAT for holding refresher classes and training courses.
  • The academic education services provided by Sino-foreign cooperative schools are exempt from VAT.
  • Enterprises held by vocational schools engaged in relevant business activities are exempt from VAT.
  • Childcare and educational services provided by nurseries and kindergartens are exempt from VAT.
  • Educational services provided overseas are exempt from VAT.
  • Simple tax calculation for VAT on non-academic education services provided by general taxpayers.
  • Simple tax calculation of VAT on educational auxiliary services provided by general taxpayers.
  • Enterprises in the education industry shall refund the VAT credit in full.
  • The income of non-profit organizations shall be exempted from corporate income tax (CIT).
  • Special additional deductions from individual income tax (IIT) taxable income for expenditures on children’s education by taxpayers whose children are receiving full-time education.
  • Special additional deductions from IIT taxable income for continuing education expenditures by taxpayers who have received academic (degree) continuing education in China.
  • Services provided by student work-study programs are exempt from VAT.
  • Tax incentives for reducing the operating costs of educational institutions. Real estate and land of schools, nurseries, and kindergartens for their own use are exempt from property tax and urban and township land use tax.
  • The cultivated land occupied by schools and kindergartens are exempt from the cultivated land occupation tax.
  • Non-profit schools shall be exempt from deed tax for the ownership of land and houses used for office, teaching, and scientific research.
  • Import tax exemption for relevant supplies imported by scientific research institutions, technological development institutions, schools, Party schools (administrative schools), and libraries.
  • Income from college students’ apartments and canteens is exempt from VAT.
  • College student apartments are exempt from property tax.
  • College student apartment rental contracts are exempt from stamp tax.
  • Teachers and researchers are exempt from taxation in accordance with relevant double tax avoidance treaties.
  • Tax incentives for encouraging social forces to actively participate in the cause of education, IIT deduction for educational donations, individuals who donate to educational causes.
  • Transfer of property rights in which the property owner donates property to the school is exempt from stamp tax.
  • Taxpayers who donate housing property rights and land use rights to educational undertakings are not subject to land appreciation tax.
  • Education surcharge and local education surcharge credit for investment in vocational education by pilot enterprises with integration of industry and education.
  • Deduction before CIT or IIT for donations for public welfare relief through China Education Development Foundation.
  • The interest income from national student loan is exempt from VAT.
  • Materials donated free of charge by overseas donors to various types of schools and other materials directly used in the cause of education are exempt from import taxes (tariffs and import VAT).

The process to benefit from these tax exemptions has been simplified and taxpayers can self-assess if they are qualified to access the incentives and apply them when making the tax payment without seeking approval from the local tax bureau.

To enjoy the tax incentives, taxpayers must retain relevant documents for potential inspection from the tax bureaus. A few of the required documents may involve a special application and approval process with local authorities.

China has one of the world’s largest K-12 education markets. Regulations commonly categorize K-12 education service providers as either non-profit or for-profit. Non-profit entities are mainly schools that provide full-time curricular education. For-profit entities include private schools, academic extracurricular tutoring, and non-academic extracurricular tutoring.

The K-12 education market has grown rapidly in recent years and has created social anxiety among parents and students seeking to gain an edge. To improve this situation, in 2021, China’s government enacted tough rules regulating and restricting the private tutoring market.

There remains enormous demand for better education and supplemental learning as both parents and schools seek a competitive edge for their students. Large players might shift their business focus to extracurricular tutoring and vocational education, both of which were not impacted by the latest regulatory changes.

To learn more about our services in China, contact our Head of Business Advisory - Ms. Kristina Koehler-Coluccia at DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.

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