- China expands the scope of preferential income tax treatment and VAT policies for small-scale tax payers.
- Hong Kong is to raise its minimum wage hourly rate to HKD40 in May.
Guangdong’s Future Prosperity Depends on High-quality Growth
In his address delivered on 28 January to over 1,000 officials and business people, Guangdong Communist Party chief Mr Huang Kunming reiterated the need for Guangdong, China’s largest regional economy, to embrace high-quality development in order to overcome the bottlenecks that stand in the way of growth.
He added that the province must increasingly strive to distance itself from “competing on land, price and labour”— a pressing issue deserving of careful attention.
The regional economic powerhouse grew by 1.9 per cent to USD1.9 trillion in 2022, which puts its GDP above that of economies such as South Korea and Canada.
Hong Kong has a key strategic role to play in facilitating Guangdong’s ascension up the value chain, and as a fundraising platform and launchpad into the Greater Bay Area.
China Introduces Measures to Attract Foreign Investors to Set Up Innovation Centres
China plans to promulgate a host of measures to attract foreign investors to establish research and development (“R&D”) centres as well as to facilitate overseas talent taking up employment in the country. The new measures aim to drive technological innovation in a bid to transform China into a preeminent tech powerhouse, which has been at the top of policymakers’ agenda.
According to the Ministry of Commerce and Ministry of Science and Technology, foreign-invested R&D centres are an integral part of China’s science and technology innovation ecosystem.
To enhance the ease of conducting foreign-invested R&D, authorities will provide support in promoting the “safe and orderly free flow” of R&D data across borders.
Furthermore, foreign-invested innovation centres will be permitted to apply, on a team basis, for a one-off work permit with a longer period of validity of up to five years. Fast-track channels will be available for top-notch talent employed by foreign-invested R&D centres, and eligibility requirements shall be relaxed. Additional sweeteners for eligible talent in respect of housing, education, spousal employment and medical insurance are proposed.
China Reaffirms Commitment to Strengthening Partnership with Latin America
At the seventh Summit of the Community of Latin American and Caribbean States held on 24 January in Buenos Aires, Argentina, President Xi Jinping delivered a video address, reaffirming China’s staunch commitment to bolstering its ties with Latin American and Caribbean countries.
Latin American and Caribbean countries, according to President Xi, are important players in the developing world and are active participants in global governance, who make meaningful contributions to it.
Acknowledging the indispensable role played by the Community of Latin American and Caribbean States in promoting solidarity among developing countries, President Xi remarked: “That is why China has been working with Latin American and the Caribbean countries to steadily strengthen the Forum of China and the Community of Latin American and Caribbean States and take their relationship into a new era characterised by equality, mutual benefit, innovation, openness and benefits for the people”.
China is Latin America’s second-largest trading partner. Trade volume between the two surpassed USD450 billion in 2021 and surged by 12.5 per cent in the first three quarters of 2022.
China Extends Preferential Individual Income Tax Treatment
On 16 January, China’s Ministry of Finance and State Taxation Administration jointly issued the Announcement on the Continuation of the Implementation of Preferential Individual Income Tax Policies, according to which preferential tax policies in respect of the following income are to remain in place until 31 December 2023:
🔵Employee’s equity income derived from participation in equity schemes of listed companies can enjoy preferential tax treatment;
🔵 Gains derived from investments via the Shanghai-Hong Kong Stock Connect, the Shenzhen-Hong Kong Stock Connect made by individual investors based in mainland China, and from the trading of Hong Kong fund units under the mutual recognition of funds, can enjoy exemption from individual income tax on a temporary basis.
China Updates VAT Incentive Policies for Small-scale VAT Taxpayers
On 9 January, China’s Ministry of Finance and State Taxation Administration jointly issued the Announcement of the Policies for Exemption and Reduction of VAT on Small-scale VAT Taxpayers (“Announcement”).
The VAT incentives delineated in the Announcement seek to broaden the scope of existing preferential VAT policies to tide businesses over the pandemic.
According to the Announcement, small-scale VAT taxpayers with monthly sales of less than RMB100,000 will be exempt from VAT between 1 January 2023 and 31 December 2023.
In addition, during the aforementioned period, small-scale VAT taxpayers normally liable to a VAT levy rate of three percent can now benefit from a reduced VAT levy rate of one percent. VAT items normally chargeable to a VAT prepayment rate of three percent can now enjoy a reduced VAT prepayment rate of one percent.
Furthermore, additional VAT deduction policies are available to small-scale taxpayers engaging in production- and lifestyle-related services, who are eligible for an additional five percent and ten percent deduction of creditable input VAT respectively in the current period.
China Continues to Pursue Opening-Up of Service Industry
On 10 January, China announced comprehensive plans to accelerate the high-quality opening-up of its service industry.
Six cities were designated as new pilot zones to drive the opening-up, namely, Shenyang in Liaoning province, Nanjing in Jiangsu province, Hangzhou in Zhejiang province, Wuhan in Hubei province, Guangzhou in Guangdong province and Chengdu in Sichuan province.
The aim is for the above pilot cities to lead by example after which other cities across the country will be modelled. According to official guidelines, the new pilot zones shall be instrumental in promoting market openness, an improved regulatory environment and better business conditions in the service industry.
Prior to the addition of the latest batch, pilot programmes were implemented in Beijing, Tianjin, Shanghai, Chongqing and Hainan province.
Pilot zones are said to play a vital role in stimulating foreign investment, which, in turn, spurs the optimisation and upgrade of China’s industrial structure.
Hong Kong to Raise Minimum Wage Hourly Rate to HKD40 in May
On 10 January, the Executive Council of Hong Kong approved the Minimum Wage Commission’s recommendation to raise the statutory minimum wage from HKD37.50 to HKD40. The increase is expected to come into force in May, subject to the approval by the Legislative Council.
The 6.7% rise comes after a four-year freeze and represents the first increase since 2019. Introduced in 2011, the statutory minimum wage had been adjusted every two years.
Secretary for Labour and Welfare Mr Chris Sun Yuk-han observed: “The recommendation of the Commission has struck an appropriate balance between the objectives of forestalling excessively low wages and minimising the loss of low-paid jobs, while giving due regard to sustaining Hong Kong’s economic growth and competitiveness.”
On a related front, a separate amendment notice was gazetted on 13 January, raising the threshold of employees’ monthly wages in respect of the requirement to keep records of employees’ working hours from HKD15,300 to HKD16,300. In other words, an employer is not required to log the number of an employee’s working hours if the latter’s monthly wages amount to at least HKD16,300.
Pursuant to the Employment Ordinance (Cap.57), employers contravening the statutory minimum wage law could be fined up to HKD350,000 and imprisoned for up to three years. Employers acting not in compliance with wage and employment record filing requirements may be liable to a fine of HKD10,000.
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