Foreign Direct Investment keeps breaking records in 2021
FDI inflow into China rose by almost 40% in the first four months of 2021. MOFCOM just announced in the second week of May that the 38.6 % growth is an increase of 30.1% compared to 2019. In the first three months of 2021, there have been 10,263 new FIEs, up by 47.8 % year on year. Two of the industries that benefited from it were Services and High tech. The reasons behind this are the quick recovery from the pandemic, the successful containment of the outbreak, stable social environment, integrated industrial system, and a great domestic market without depending on exports. In 2020, China was the only major economy with growth, which increased the investors’ confidence in the market and especially seeing the efforts in making the structure of China’s FDI structure easier for foreign corporations.
China has become the biggest recipient of Foreign Direct Investment inflows
Apart from the quick and efficient response to the pandemic, other factors have contributed to China becoming the world’s top investment destination. First, infrastructure projects, such as roads, high speed, bridges, and highways, make business possible. Second, the workforce is more sophisticated with a varied pool of talents. Third, tax and financial incentives include tax breaks, loans, grants, and subsidies to boost the profitability of commercial and entrepreneurial activities. Fourth, the domestic market focuses on technology, cosmetics, luxury, e-commerce, medicine, and other added-value industries. Finally, the ease of doing business keeps changing to allow and facilitate foreign companies to enter the Chinese market. Together with the stable business ecosystem, all these factors have shown that China is, for now, one of the most attractive destinations for investors.
Changes in the tax rebates on exports
As a response to the economic situation of 2020 and the challenges of the pandemic, the tax authorities in China implemented a policy to match the tax rebate rate with the VAT that applied to exported products, with an exemption on certain highly pollutant, resource-intensive or energy-intensive items. Additionally, some procedures were simplified to enhance the process of applying for the rebate. For example, it is no longer required to submit the pre-declaration and some supporting documents. Additionally, if the business has not commenced yet, there is no need to submit the “Nil” declaration form. Another significant change is the reduction of the timeframe to receive the tax rebate. The average time was reduced from 20 days to 10-15 days.
Individual income tax policies that will change on 2022
As we approach the middle of 2021, expats living in China should pay attention to the transitional policy, allowing them to claim tax exemption on certain benefits-in-kind until the end of 2021. This was considered a concession for expatriates in China when the government rolled out the updated Individual Income Tax Law.
Although no official announcement has been released yet, there are discussions whether the transitional policy will be extended until the end of 2022. However, both employers and employees should plan how to transit to the new system which is based on six deduction categories (children’s education, continued education, housing mortgage, housing rent, healthcare cost for serious illnesses, and expenses for taking care of the elderly).
China increases and extends the VAT exemption threshold for small-scale taxpayers
Effective on 1 April 2021, small-scale taxpayers with monthly sales income up to CNY 150,000 were exempted from VAT from 1 April 2021 to 31 December 2022.
State Administration of Taxation requires local tax authorities to increase the portion of enterprises to be selected for tax inspection
The State Administration of Taxation has asked local tax authorities to pay more attention to the key areas where tax evasion occurs frequently. As a result, an increased portion of enterprises will be selected for tax inspection. Key areas involve production and processing of agricultural and sideline products, purchase and utilization of waste materials, purchase and sale of bulk commodities (such as coal, steel, electrolytic copper, and gold), profit-making educational institutions, medical beauty, live broadcasting platforms, intermediaries/agencies, equity transfer of high-income groups and other industries and fields.
Emphasis will be placed on investigating and dealing with illegal tax-related behaviors such as issuing or accepting false invoices, concealing income, falsely listing costs, using preferential tax policies and related-party transactions to do malicious tax planning, and using new business models to evade taxes.
China’s Transfer Pricing contemporaneous documentation
Recently, the Hangzhou local tax bureau prepared ten key questions and answers about the preparation and administration of the contemporaneous documentation. These ten questions include:
- What does contemporaneous documentation cover?
- Which enterprises need to prepare a contemporaneous documentation-master file?
- Which enterprises need to prepare a contemporaneous documentation-local file?
- Which enterprises need to prepare a contemporaneous documentation-special issue file?
- Under what circumstances can an enterprise be exempted from preparing contemporaneous documentation?
- What conditions need to be met to simplify the submission of the master file?
- In what period should the enterprise complete the preparation of the contemporaneous documentation?
- When should the enterprise provide the contemporaneous ¯ documentationï¼
- What are the regulations for the preservation of contemporaneous documentation?
- What are the risks of violating the relevant regulations for the Administration of Contemporaneous Documentation?
Click here to access the answers.
Hong Kong’s Inland Revenue Department issued over 2.6 million tax returns for individuals
On 3 May 2021, the Inland Revenue Department (IRD) sent out about 2.62 million tax returns for individuals for the year of assessment 2020/21. In general, taxpayers should file their tax returns within one month by 3 June. For sole proprietors of unincorporated businesses, a three-month period is allowed and the filing deadline is 3 August. Those filing via eTAX will have an automatic extension of one month (i.e. deadline for general cases extended to 3 July whereas the deadline for sole proprietors extended to September 3).
The Revenue (Tax Concessions) Bill 2021 was passed by the Legislative Council on 28 April, giving effect to the tax concessions proposed by the Government in the 2021-22 Budget, reducing salaries tax, tax under personal assessment, and profits tax for the year of assessment 2020/21 by 100 percent, subject to a ceiling of $10,000 per case. Taxpayers should file their returns for the year of assessment 2020/21 as usual. The IRD will effect the reduction when making assessments.
China keeps on with its opening-up strategy
Last month, the State Council approved pilot programs for Shanghai, Tianjin, Chongqing, and Hainan to open up the service sectors. As a result, different sectors will be opened in these four cities, and the latter can proceed with the opening-up process in the next three years. Twelve service sectors will be opened, including scientific and technological services, financial services, commercial services, logistics, healthcare, education, telecommunications, electricity services, telecommunications, e-commerce services, tourism, and culture, sports, and entertainment. Moreover, this strategy for the service sector follows the trend among Chinese consumers who are adapting their appetite from consumption of commodities and goods to consumption of services.
Personal data protection in China
On 29 April 2021, China issued a second version of the draft Personal Information Protection Law (Draft PIPL), available for public comments until 28 May 2021.
The Draft PIPL will exert a significant impact on personal data protection once it comes into effect.
Currently, China does not have a comprehensive data protection law. Instead, the data protection rules can be found in various existing laws such as the Cybersecurity Law, the Civil Code, and the Decision on Strengthening Online Information Protection. Therefore, below are the relevant points for those companies processing individuals’ personal data in China (regardless of their nationality):
- Obtain the consent of the data subjects.
- Disclose relevant policies regarding the collection, use, purpose, processing of remedial actions about the data to be collected.
- Keep the personal data confidential.
- Provide rights to the data subjects for accessing, copying, correcting, or deleting the data collected.
- Keep the personal information collected within China unless the company has obtained permission to transfer the personal data out of China after meeting certain conditions.
China’s crackdown on malicious trademark registration
During the annual Two Sessions meeting in early March 2021, enhancing intellectual property (IP) protection was one of the core points reiterated by the Government Work Report. China’s national Intellectual Property administration is giving special scrutiny to more than 1,500 trademark applications related to the epidemic and looking into the trademark agencies involved for “their potential to cause negative social effects” in accordance with China’s Trademark Law. Law-breaking trademark agencies and individual agents will be punished by regulators of multiple sectors and be given no or very limited access to policy incentives and government programs. The breaches will also mark their credit history. The Special Action Plan targets malicious trademark registration acts that squat the trademark of others for illegitimate benefits, disrupt the order of the trademark registration administration, and cause significant loss to business besides confusing brand identity among consumers and affecting public trust.