China works to further stabilize foreign trade and investment
In a circular published by the State Council on 12 August 2020, China urged efforts to further stabilize foreign trade, investment, and industrial supply chain. The circular contains 15 opinions in six areas, namely employment, people’s livelihoods, the development of market entities, food and energy security, stable operation of industrial and supply chains, and operations at grassroots levels. It also seeks to stabilize employment, finance, foreign trade, foreign investment, domestic investment and market expectations.
From CW’s perspective, we think the key highlights are:
- To facilitate foreign businessmen’s trips to China. With strict epidemic prevention and control measures in place, negotiations on green channels with other countries should continue in order to facilitate personnel exchanges in important business, logistics, production and technical services of foreign trade and foreign enterprises.
- To encourage foreign capital to flow to high-tech industries. China will promote the facilitation of management and services in qualifying new and high technology enterprises, and further strengthen the training and publicity of the application requirements for the recognition of new and high technology enterprises.
- To lower the threshold for foreign R&D centers to enjoy preferential policies. China will reduce the required number of full-time R&D personnel in foreign-invested R&D centers that are subject to preferential tax policies. (Currently, to set up a foreign-invested R&D center in China, personnel possessing a Bachelor’s degree or a higher degree and directly engaged in R&D activities shall constitute no less than 80% of the total staff number in China.)
Notice Regarding Several Issues on Participation of Labor Dispatch Companies and Human Recourses Service Companies in Social Insurance Scheme
Given the common situation of paying social security on behalf in labor dispatching companies and human resource service companies, the Beijing Social Insurance Fund Management Centre issued the Notice which took effect on July 5, 2020.
By forcing the companies to fill in the information related to labor contracts when registering or adding new employees through the online service platform and the three-insurance business system, the Center takes strict control of such situations of these companies in advance. Especially for companies that have not yet registered entity in Beijing, if the actual labor entity entered does not exist in the system, there will be a corresponding prompt alert, which will not be able to complete the insurance registration or adding new employee. Labor dispatching companies and human resource service companies in Beijing can no longer pay social insurance on behalf in Beijing for employees who are hired by companies registered outside Beijing, nor can¯dispatch employees to companies registered outside Beijing.
Even though the notice applies to the city of Beijing, the notice may serve as a reference in other cities in regulating the labor dispatch and human resources service agencies paying local social insurance on behalf of companies registered in a different city.
China reinstated tax exemption and reduction for the importation of 20 commodities
From 5 August 2020, 20 categories of commodities, imported either by consumers or businesses, can now enjoy applicable tax exemptions and reduction policies. These commodities include TV, video cameras, video recorders, disc players, audio equipment, air conditioners, refrigerators, and freezers, washing machines, cameras, copiers, program-controlled telephone switches, microcomputers and peripherals, fax machines, telephones, wireless paging system, electronic calculators, typewriters and word processors, furniture, lamps and lanterns, meal (seasoning, meat, eggs, aquatic products, fruit, beverage, wine, dairy products).
Currently, duty-free customs clearance applies to items for personal use obtained abroad and brought in by Chinese nationals with a total value of no more than RMB 5,000 and items for personal use brought in by foreign nationals with a total value of no more than RMB2,000. Before 5 August 2020, cigarettes, alcohol, and the aforementioned 20 categories of commodities are excluded from the exemption. With the new announcement in place, the 20 categories of commodities can benefit from the duty-free policy.
China’s State Administration of Taxation clarified issues related to the creation of permanent establishment as well as the residence status of companies and individuals during COVID-19 crisis
Due to the COVID-19 outbreak, many countries have imposed restrictions on entry and exit, resulting in many key employees of many companies being stranded and forced to work in other countries, which has raised a number of cross-border tax issues. On 14 August 2020, China’s State Administration of Taxation published responses to frequently asked questions related to the creation of permanent establishment and the residence status of a company (place of effective management) as well as issues related to a change to the residence status of individuals, based on the Agreement Between the Government of the People’s Republic of China and the Government of the Republic of Singapore on Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and the Interpretations on the Articles in the Protocol [Guo Shui Fa (2010) No. 75]
- Home Office: The exceptional and temporary change of the location where employees exercise their employment because of the COVID-19 crisis, such as working from home, should not create new PEs for the employer.
- Agency PE: During the COVID-19 crisis, an employee or an agent temporarily working from home and exercising an authority to conclude contracts for a non-resident employer is usually considered as emergent behavior and unlikely to be regarded as habitual. However, a PE should be considered to exist where the relevant activities took place long before the COVID-19 crisis, or continue for the long term after the COVID-19 crisis, since such activities have a certain degree of permanency and are not purely temporary or transitory.
- Construction site PE: Many activities on construction sites are being temporarily interrupted by the COVID-19 crisis. Suppose there is a construction site that has not constituted or will not constitute a PE under the applicable tax treaty according to its original time schedule. However, due to the COVID-19 crisis, the construction and management personnel have all been evacuated from the construction site, causing the temporary interruption of the construction project. As a result, the actual duration of the construction site exceeded the PE time threshold. In calculating the duration of the project, deductions shall be allowed for the dates of total shutdown due to the impact of COVID-19.
- Residence status of a company (place of effective management): Due to the temporary changes in the decision-making places of some senior executives due to COVID-19, the judgment on the location of the actual management will not be affected. A temporary change in location of the chief executive officers and other senior executives is an extraordinary and temporary situation due to the COVID-19 crisis and such change of location should not trigger a change in residency.
- Residence status of individuals: A person who is temporarily away from their home and gets stranded in the host country by reason of the COVID-19 crisis and attains domestic law residence in the host country, the tie-breaker test shall be used to determine the individual’s tax residency, based on the individual’s permanent residence, center of vital interests, habitual adobe and nationality (in the order in which they appear in the treaty).