New Implementing Rules on Encouraging and Guiding the Development of Elderly Care Industry

On 3 February 2015, the PRC Ministry of Civil Affairs (“MCA”), the Ministry of Land and Resources as well as other eight governmental authorities jointly issued the Implementing Opinions on Encouraging Private Capital to Participate in the Development of Elderly Care Industry (the “Implementing Opinions”). The Implementing Opinions provide more detailed rules on land supply, preferential policies on fees and taxes, investment and financing policies on national level for the elderly care industry. We highlight below the most significant stipulations introduced by the Implementing Opinions.

1. Land Supply

• The land to be used by for-profit elderly care institutions shall be mainly supplied through (i) granting land use rights with a maximum period of fifty years or (ii) lease of land use rights with a lease term of no more than the maximum granting period applicable to the same type of land. Lease of land use rights shall be the primary approach for the sake of construction budget control.
• Encouraging the re-use of existing land which has been allocated or granted for the development of elderly care institutions, i.e. for-profit elderly care institutions are only required to pay additional land premium without change of the purpose of the land where the construction project involves grant or assignment of allocated land use rights and the original purpose of the land concerned was in compliance with urban development plans. In practice, quite a few existing PRC elderly care institutions were built on allocated land rather than granted land or on land for industrial purpose or other purposes not related to elderly care institutions. Therefore, the Implementing Opinions are favorable to foreign investors who intend to acquire the said existing PRC elderly care institutions.

2. Preferential Policies on Fees and Taxes

• Exemption of value-added tax and business tax on the transfer of real estate and land use right in connection with asset restructuring of elderly care institution. Although the Implementing Opinions do not specifically clarify the definition of “asset restructuring”, reference may be made to several official circulars issued by the PRC State Administration of Taxation. According to them, asset restructuring shall include transfer of all or part of business assets to other entities or individuals through merger, division, asset deal, etc.
• Exemption of business tax on nursing services provided by privately-owned elderly care institutions.
• Exemption of administrative and institutional fees for non-profit elderly care institutions and 50% reduction of administrative and institutional fees for for-profit elderly care institutions.

3. Investment and Financing Policies

• Privately-owned elderly care institutions are permitted to use their land use rights and other real properties obtained for consideration as securities for loans. Before the issuance of the Implementing Opinions, since land use rights and other real properties owned or used by elderly care institutions were usually categorized into real estate for public welfare purposes which are not permitted to be mortgaged according to the PRC Security Law, most of the PRC commercial banks were reluctant to grant loans to privately-owned elderly care institutions in practice. The Implementing Opinions substantially improve the financing capacity of privately-owned elderly care institutions.
• No less than 50% of lottery public welfare funds for the purpose of social welfare undertakings held by the MCA and local governments shall be used for supporting the development of the elderly care industry and at least 30% of the said funds shall be used for supporting the privately-owned elderly care industry.

Currently, the elderly care industry in China is undergoing a transition period from being operated by the government to being operated by private-sector entities. The Implementing Opinions further open the door to foreign investors to such emerging market.