China – Guidelines for Developing Sports into RMB-5-trillion-per-annum Sector – Tax Cuts for High-tech Sports Enterprises

by DLA Piper
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Yesterday (20 October 2014), as part of its agenda for boosting employment, domestic consumption and other areas of the Chinese economy, China’s Cabinet, the State Council, issued new guidelines 《国务院关于加快发展体育产业促进体育消费的若干意见》 (国发〔2014〕46号) (the “Guidelines“) to enhance the country’s fast-growing sports industry.  The Guidelines aim to grow output of China’s sports sector from 0.6% to 1% of its total GDP. 

The Guidelines arrive as Beijing is competing with Almaty to host the 2022 Winter Olympic and Paralympic Games, and the International Olympic Committee is expected to choose the host city at its Session in Kuala Lumpur on 31 July 2015.

Following the release of the Guidelines, stock values of various sports-related companies listed on the Hong Kong Stock Exchange closed up significantly today.

Please find below a summary of the Guidelines:-

New Goals

The State Council hopes that, by 2025, the Chinese sports sector will:-

  • promote national health and fitness through various sports to see more than 500 million citizens regularly exercising;
  • generate a sustainable national income of RMB 5 trillion (equivalent to approximately USD 815 billion) per annum;
  • create an average area of sports grounds in the country that is beyond 2 m2 per capita; and
  • enable public sports services to be accessible to all of its population.

Main Missions

At present, the Chinese sports model is a strictly controlled pyramid with most professional athletes selected at a young age and trained year-round for international competitions in specific sports.  Sports in China are currently not as commercialized as in many other developed countries, and sports activities are always considered as the responsibility of the State, which means most of the sports resources, including organizing and staging rights, are held by the State, and very few private entities can get involved.  To develop a market-oriented sports industry, the State Council plans to:-

  • promote popularization of three types of ball sports – basketball, football and volleyball – for example, it will set up a long-term development plan for football, which is relatively undeveloped compared with other ball sports in China, and such development plan will include construction of sports facilities and promotion of football on campuses;
  • professionalize more sports events, including setting up professional sports leagues, improving corporate governance structure of sports clubs and establishment of a modern enterprise system in the sports sector;
  • provide financial support and form a policy system that is conducive to the sports market’s rapid growth by eliminating industrial, policy and regulatory barriers, such as complex administrative approval procedures;
  • implement measures that are expected to change the current operation mechanism of the sports industry in China;
  • open all sports fields that are compliant with existing laws and regulations to the public; and
  • encourage private capital to invest in the construction of ice and snow sports sites.

Tax Cuts for High-tech Sports Enterprises and Other New Policies

To lower the operational costs for the sports industry, the State Council has decided to lower business income tax to 15% for those identified as high-tech sports enterprises – this rate is considerably lower than the approximately 25% rate for other industries.

In addition to the tax cuts for sports enterprises, the State Council plans to:-

  • formulate and implement policies to protect the business interests and the intellectual property rights of sports enterprises, who are encouraged to increase their profits from advertisements and sponsorships;
  • enable more citizens to participate in sports by requiring local governments to incorporate public expenditure on sports into their annual fiscal budgets;
  • formulate and implement policies to introduce private capital into the sports sector via listing or bond issuance by qualified enterprises
  • encourage social capital to invest in the construction of sports facilities and the supply of sports-related products and services; and
  • encourage foreign capital investment in the domestic sports industry.

Execution Plan

The first step of the State Council’s execution plan is to amend the PRC Sports Law 《中华人民共和国体育法》 in accordance with the Guidelines.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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