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China Updates – February 2024

China Prescribes Three-year Transition Period for Existing Companies to Comply with New Capital Contribution Requirements

On 6 February 2024, China’s State Administration for Market Regulation issued the Provisions of the State Council on the Implementation of the Registered Capital Registration and Management System Specified in the Company Law of the People’s Republic of China (“Provisions”).

According to the amended Company Law, which will come into force on 1 July 2024, shareholders are required to pay in their subscribed capital fully within five years from the date of incorporation. At present, it is common practice for companies to adhere to a capital contribution payment schedule that goes beyond five years.

Comprising 15 articles, the Provisions provide for the modification of the timeline for the payment of capital contributions by existing companies, the registration and administration of subscribed capital, and the management of companies with irregular capital contributions.

In particular, the Provisions establish a three-year grandfathering arrangement for existing companies. In addition, they provide clear guidelines for the implementation of the capital contribution deadline for newly formed companies. Further, registration agencies are mandated to streamline services, define the deadline of capital contribution payments, and establish procedures for identifying and addressing irregular contributions. The document also outlines exemptions for certain companies, emphasising the importance of complying with information disclosure requirements.

Shenzhen Promulgates Measures to Reduce Costs for Manufacturing Companies

Shenzhen has introduced 20 measures to sharpen the competitiveness of manufacturing companies and lighten their burden in five key areas: land, labour, financing, energy, warehousing, and logistics. These measures became effective on 1 January 2024 and will be in place until 31 December 2026.

Traditional manufacturing enterprises are being urged to join the digital revolution. The national city of innovation is actively supporting such companies in their efforts to establish intelligent manufacturing facilities. They are encouraged to adopt advanced manufacturing technologies, such as top-of-the-line CNC machines, industrial robots, and intelligent sensors and controls. Eligible enterprises may qualify for certain subsidies.

In addition to enhancing access to loans, Shenzhen will encourage small- and medium-sized enterprises to leverage other forms of financing. In particular, the city will promote the issuance of bonds by companies, both domestically and internationally. Successful issuers will receive subsidies of up to RMB 500,000, equivalent to 2% of the amount raised.

To lower the burden of property rental expenses, affordable industrial spaces will be offered to fledgling businesses. This measure aims to facilitate targeted short-run production, research and development efforts, and the production of lightweight materials. The measures also advocate the use of smart devices to substitute manual labour, thereby driving down labour costs.

On the energy-saving front, Shenzhen will support small-, medium-, and micro-sized businesses by providing access to external power systems with a voltage of 10 kilovolts or less. This will enable them to utilise a higher voltage without the need for building high-voltage power facilities.

New Reciprocal Enforcement Mechanism between Mainland China and Hong Kong Comes into Force

The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) (“Ordinance”) came into force on 29 January 2024. The Ordinance introduces a new mechanism to facilitate the reciprocal recognition and enforcement of court rulings in civil and commercial cases. It heralds the commencement of a new chapter in cross-boundary judicial partnership. To date, Hong Kong stands as the sole jurisdiction worldwide with such an extensive reciprocal enforcement arrangement with mainland China. This unique position is poised to further elevate Hong Kong’s status as an international legal and dispute resolution services hub.

The Ordinance is applicable to judgments delivered on or after 29 January 2024. It provides for the enforcement of mainland judgments in Hong Kong by way of a registration application. In addition, it makes provision for the recognition and enforcement of Hong Kong judgments on the mainland through obtaining a certificate and a certified copy of the judgment.

The Ordinance covers a broad spectrum of judgments delivered in civil or commercial proceedings. It also applies to criminal cases involving an order for the payment of money. Items on the list of “excluded judgments”, however, fall outside the scope of the Ordinance.

The newly implemented mechanism will provide various advantages, including:

  • Eliminating the necessity to re-litigate disputes;
  • Broadening the scope of enforceable judgments to encompass those of a monetary as well as non-monetary nature;
  • Not requiring parties to consent to the sole jurisdiction of either a mainland or Hong Kong court;
  • Increasing the number of courts where cross-boundary judgments can be enforced.
China Issues Measures to Facilitate Entry of Foreigners

China’s National Immigration Administration rolled out five measures to facilitate the entry of foreign nationals into the country. Effective from 11 January 2024, the measures aim to eliminate barriers for foreign nationals to partake in business, tourism, and education activities, thereby enhancing accessibility.

The five measures to streamline entry procedures for foreigners on short-term stays in mainland China are as follows.

Relaxation of port visa requirements

Foreign nationals with urgent non-diplomatic or official reasons to visit China, such as for business partnerships, visits, exchanges, investment, entrepreneurship, family visits, or other personal matters, have the option to apply for port visas if they are not able to obtain visas in time. This can be done by presenting their invitation letter and other relevant paperwork to port visa authorities.

24-hour visa-free transits

Foreign nationals are permitted to transit visa-free through Beijing Capital Airport and eight other designated airports for up to 24 hours. They will not be required to undergo any immigration procedures during the 24-hour window. This policy applies to the following airports:

  • Beijing Capital International Airport
  • Beijing Daxing International Airport
  • Chengdu Tianfu International Airport
  • Guangzhou Baiyun International Airport
  • Hangzhou Xiaoshan International Airport
  • Shenzhen Bao’an International Airport
  • Shanghai Pudong International Airport
  • Xiamen Gaoqi International Airport
  • Xi’an Xianyang International Airport.

Simplifying visa extension and renewal procedures

Foreign nationals with urgent non-diplomatic or official reasons to visit China (i.e., those listed above), and who have legitimate and justifiable reasons to prolong their stay in China, can now apply for a visa extension and renewal at their nearest Public Security Bureau branch.

Multiple-entry visas

Foreign nationals in China who require multiple entries into and exits from the country for valid and justifiable reasons can apply for a multiple-entry visa from the Public Security Bureau.

Reducing application paperwork for visa applications

Foreign nationals whose invitation letter, temporary residence registration record, business licence of the inviting company, and other relevant documents can be verified on the information-sharing portal are now exempt from presenting the original copies during the visa application process.

China Introduces Tax Policies for Hengqin Cooperation Zone

On 3 January 2024, China’s Ministry of Finance (“MOF”), General Administration of Customs, and State Taxation Administration (“STA”) jointly issued the following documents:

  • Circular on the Tax Policies for Entry and Exit of Goods in Guangdong-Macao In-Depth Cooperation Zone in Hengqin (“Cooperation Zone”)
  • Circular on the Tax Policies for Personal Baggage and Delivery Items in Cooperation Zone.

According to both Circulars, a “first tier” will be established between the Cooperation Zone and Macao, and a “second tier” between the Cooperation Zone and the mainland. Eligible goods entering the Cooperation Zone via the “first tier” will qualify for tax exemption, whereas goods under different conditions will be subject to specific policies governing bonded goods.

In addition, goods manufactured by a company in the Cooperation Zone, which incorporate imported materials or components and generate a value addition of 30 per cent or more after processing within the Zone, will be exempt from import duties when entering the mainland via the “second tier”. However, they will still be subject to import VAT and consumption tax.

On a related front, the MOF and STA released the Circular on Adjusting the Scope of Goods Qualified for the Refunds of VAT and Consumption Tax in the Cooperation Zone on 15 January 2024. The document specifies that products entering the Cooperation Zone from the mainland via the “second tier” will be deemed exports and, as such, eligible for VAT and consumption tax refunds, except in the following cases:

  • Exported goods not covered by VAT refund or exemption policies as per MOF and STA regulations.
  • Other goods for which tax is non-refundable when sold to the Cooperation Zone from the mainland.
  • Goods purchased by enterprises that no longer meet the criteria for tax refunds or exemptions.
Hong Kong Signs First Protocol to Amend Free Trade Agreement with ASEAN

On 9 January 2024, Hong Kong’s Secretary for Commerce and Economic Development, Algernon Yau, signed the First Protocol (“Protocol”) to Amend the Free Trade Agreement (“FTA”) with ASEAN to foster closer economic and trade ties. The Protocol updates the Product Specific Rules (“PSR”) of origin under the FTA. It expands the scope of PSR from over 200 categories of products to nearly 600. This allows Hong Kong businesses to more readily obtain Hong Kong-originating status for a greater number of products. Hence, they are able to benefit from favourable tariff arrangements when entering the buoyant ASEAN market.

The FTA, amended through the Protocol, now encompasses diverse products of particular relevance to Hong Kong traders and manufacturers. These include food products, jewellery, medicines, and textiles. In addition to boosting trade flows between the two regions, the Protocol will generate fresh business prospects for Hong Kong enterprises in the ASEAN market.

As Yau observed, Hong Kong’s trade with ASEAN – its second-largest trading partner in merchandise – amounted to approximately HKD 1,294 billion in 2022. This marks a growth of more than 38% since the FTA was signed in 2017. The FTA has significantly contributed to fostering the growing trade relationship between the two sides. It has played a pivotal role in bolstering Hong Kong’s standing as a global trade hub.

In addition, Yau added that the adoption of the Protocol would further enhance the development of Hong Kong’s economic and trade ties with ASEAN member states. Committed to free trade, Hong Kong would continue working alongside its trading partners to pursue further trade liberalisation.

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