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China Updates – November 2023

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Hong Kong Launches Scheme to Boost Commercialisation of Research and Development Outcomes

On 18 October, Hong Kong’s Innovation and Technology Commission (“Commission”) launched the Research, Academic and Industry Sectors One-plus Scheme (“Scheme”). The deadline for this year’s intake is 30 November. Each eligible university can submit up to 15 applications during each application solicitation period.

The primary aim of the Scheme is to unlock the potential of local universities in converting and commercialising research and development (“R&D”) outputs. Additionally, the Scheme seeks to foster collaboration among the different players, including the government, industries, R&D sectors, and universities.

HKD 10 billion worth of funding is earmarked for the Scheme, which aims to support, on a matching basis, a minimum of 100 research teams from eight University Grants Committee-funded universities. Applicants should show promising potential to transform into thriving start-ups. Each approved project can receive up to HKD 100 million in funding. Scheme participants may join at either the first or second stage, based on the level of development of their R&D outcomes.

The following criteria form the basis of a comprehensive evaluation process to determine each project’s overall merit and potential for success:

  • Innovation and technology aspect
  • Financial component
  • Commercial viability
  • Technical know-how of the team
  • Managerial competence of the team
  • Alignment with government policies
  • Relevance to the wider community

According to a spokesperson for the Commission: “In order to promote commercialisation of R&D outcomes, the Government hopes that the scheme can incentivise collaboration among industry, academic and research sectors to further promote the ‘1 to N’ transformation of R&D outcomes and the industry development.”

Hong Kong Releases Bill for Tax Certainty Scheme for Onshore Equity Disposal Gains

In March, Hong Kong’s Financial Services and Treasury Bureau initiated a consultation to solicit views on the introduction of a scheme for onshore equity disposal gains to enhance tax certainty. Following the consideration of the various recommendations, the Inland Revenue (Amendment) (Disposal Gain by Holder of Qualifying Equity Interests) Bill 2023 (“Bill”) was gazetted on 20 October.

The Bill deems any gains or profits arising in or derived from Hong Kong on the disposal of equity interests to be capital in nature. This means that qualifying entities that meet certain conditions are not subject to profits tax on these gains. The new scheme applies to disposals of equity interests taking place on or after 1 January 2024 and gains arising from such disposals accruing in the basis period for a year of assessment commencing on or after 1 April 2023.

The eligibility criteria as set out in the Bill are as follows:

  • The investor entity must be an eligible investor entity;
  • What is being disposed of is an eligible equity interest held in an eligible investee entity; and
  • The prescribed equity holding conditions must be met, or alternatively, the exception conditions apply.

Eligible investor entity refers to a legal person or a structure that maintains independent financial records, including partnerships, trusts, and funds. The definition excludes a natural person. The same applies to an eligible investee entity.

Eligible equity interest refers to an interest that provides rights to the profits, capital, reserves of the investee entity and is recorded as equity in the investee entity’s accounts in accordance with the relevant accounting standards.

The prescribed equity holding conditions refer to the holding period and holding percentage of the equity interests in the investee entity. Specifically, the investor entity must have held no less than 15% of the equity interests in the investee entity continuously for a 24-month period prior to the date of the disposal.

Adoption of Digital E-Invoices to be Widened in China

On 19 October, the Qinghai Provincial Tax Service and State Taxation Administration jointly issued the Announcement on Conducting the Pilot Programme for Fully Digitalised Electronic Invoices (Exposure Draft) (“Announcement”), inviting public comment. The period for soliciting opinions and suggestions ended on 20 October.

The pilot programme to adopt digital e-invoices has been rolled out nearly nation-wide in China, except in Beijing, Shandong, Hunan, Anhui, Guizhou, Ningxia, Qinghai, and Tibet.

On 1 November, the province of Qinghai launched the pilot programme for specific taxpayers with access to the digital invoice service platform. According to the Announcement, the same legal effect is conferred on e-invoices. Additionally, digital invoices possess the same functions as hardcopy versions. Currently, there are four types of e-invoices:

  • Special VAT Invoice
  • General Invoice
  • Flight Itinerary for Air Transport
  • E-Ticket for Railway Transport

The e-invoice service platform’s digital tax account offers an automated solution for taxpayers participating in the pilot scheme. It automatically collects invoice data, allowing users to easily query, check, download, and print invoices. The platform also provides various additional functions, such as tax policy enquiry, application for adjustment of the total invoice amount, and reminder generation relating to invoice processing risk management.

Participating taxpayers have the flexibility to issue digital invoices using the e-invoice service platform as well as via email, QR codes, and other means. If the invoiced party is a taxpayer participating in the pilot scheme, the digital invoice will be sent to the corresponding e-tax account. In the case of a recipient who is a natural person, the digital invoice will be delivered to the individual’s personal income tax application.

China Extends Eligibility for Reduced Corporate Income Tax Rate in Hainan Free Trade Port

China’s National Development and Reform Commission has released the Catalogue of Industries Encouraged to Develop in Hainan Free Trade Port (“FTP”) (Revised Exposure Draft) (“Catalogue”) for public consultation. The period for public comment ends on 20 November.

The updated Catalogue is divided into 14 categories, including farming, forestry, husbandry, and fishing. The number of sub-items has risen from 143 to 171, encompassing various sectors, such as manufacturing, transportation, warehousing, and postal services.

According to the Circular on Preferential Policies on Enterprise Income Tax for Hainan FTP issued by the State Taxation Administration in 2020, enterprises operating in industries listed in the Catalogue with substantive business operations in Hainan FTP can enjoy a reduced corporate income tax rate of 15 per cent. An enterprise shall be deemed to have substantive business operations if:

  • Its management body is located in Hainan FTP; and
  • It exercises substantial overall management and control over production, operation, personnel, accounts, and property.

The construction of Hainan Free Trade Port is progressing apace. China continues to ramp up efforts to accelerate reforms and opening-up. Hainan is also making significant strides in institutional innovations that conform to international standards.

Over the last five years, Hainan has witnessed remarkable growth in foreign investment. The actual utilisation of foreign investment has jumped by an average of 63.2 per cent annually, according to the executive vice governor of Hainan. In addition, the total investment during this period has surpassed that of the previous three decades.

Hong Kong to Introduce New Unique Business Identifier for Companies

The Hong Kong Special Administrative Region Government has announced plans to introduce a Unique Business Identifier (“UBI”) for local companies and entities. A UBI refers to a special number assigned to a business entity for identification purposes. Under this new initiative, the eight-digit business registration number will be adopted as the UBI. It aims to eradicate any potential confusion and misidentification arising from the various identifiers assigned to business entities. Additionally, the UBI will assist companies in efficiently verifying credentials when dealing with other business entities.

Hong Kong’s Companies Registry will follow a two-phase implementation of the UBI. The initial phase was rolled out on 1 November 2021, targeting Limited Partnership Funds. The second phase, which will coincide with the launch of the revamped Integrated Companies Registry Information System on 27 December 2023, will extend UBI coverage to limited companies and other entities.

The business registration number refers to the initial eight digits of the business registration certificate number, which is given by the Inland Revenue Department in accordance with the Business Registration Ordnance (Cap. 310).

For companies established or registered on or after 27 December 2023, their newly assigned business registration number will concurrently serve as their company registration number. It will be displayed on the certificate of incorporation or the certificate of registration in the case of a non-Hong Kong company. It is current practice for the Companies Registry to assign a separate company registration number to every entity.

For companies already in operation, their existing business registration number will serve as their UBI in all correspondence submitted to the Companies Registry, starting from 27 December 2023.

Belt and Road Initiative: China Announces New Plans to Bolster Connectivity and Cooperation

Held from 17 to 18 October in Beijing, the third Belt and Road Forum for International Cooperation concluded on a high note. The second forum’s achievements were eclipsed by those of the recent forum, which yielded an impressive total of 458 practical outcomes. The attendance of representatives from 151 nations and 41 international organisations highlights the broad-based support for the Belt and Road Initiative (“BRI”).

The new initiatives announced by China at the forum aim to:

  • Establish a more interconnected global community;
  • Cultivate an inclusive global economy;
  • Foster collaboration among partners;
  • Promote scientific and technological progress;
  • Champion sustainable development;
  • Encourage cultural exchanges; and
  • Consolidate institutional frameworks.

At the forum, China made pledges to further ease market access for foreign companies and provide financial support to the tune of USD 100 billion for BRI projects in emerging economies. It seeks to remove all barriers to foreign investment in the manufacturing industry and broaden market access for digital products and other goods.
In addition, China underlined the significance of green development and sci-tech innovation. It aims to enhance collaboration in key areas, such as green infrastructure, energy, and transportation. On the sci-tech front, China announced plans to implement a new global initiative to promote the development of artificial intelligence governance.

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