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China Updates – September 2021

Greater Bay Area launches Wealth Management Connect

On 10 September 2021, the People’s Bank of China, the Hong Kong Monetary Authority (HKMA), and the Monetary Authority of Macao announced the implementation details of the Wealth Management Connect scheme that links Guangdong, Hong Kong, and Macau.

Under the scheme, there are an aggregate quota of RMB150 billion in each direction and an individual investor quota of RMB1 million, which enables the residents of Greater Bay Area Mainland cities to invest in certain eligible products sold by banks in Hong Kong and Macau via designated investment accounts.


One Record Filing for Multiple Outbound Remittances

On 29 June 2021, the State Administration of Taxation & State Administration of Foreign Exchange issued an announcement relating to the filing requirements of outbound remittances.

Domestic institutions and individuals making multiple outbound remittances under the same contract would only be required to conduct the tax record filing once before the first remittance payment. Further, the official interpretation clarifies that if the tax record filing for outbound remittance has been conducted before the issuance of this Announcement, no record filing for outbound remittance would be required for the subsequent remittances under the same contract.


Cancelation of the Local Tax Surcharges related to Withholding Value Added Tax (VAT) and Consumption Tax (CT)

Transactions subject to VAT and CT in China are generally subject to local tax surcharges (i.e., Urban Maintenance and Construction Tax, Education Levy and Local Education Levy).

However, effective from 1 September 2021, import of goods; or labor, services or intangible assets sold by overseas entities or individuals to domestic entities would not be subject to local tax surcharges.


China’s Crackdown against Cryptocurrencies

On 24 September 2021, the People’s Bank of China and other nine authorities released the Circular about Further Preventing and Tackling the Risks of Speculating Cryptocurrencies.

Virtual currencies such as bitcoin, ethereum, and USDT coins are not legally reimbursable and should not and cannot be used as currencies in the market. Virtual currency-related business activities are considered illegal financial activities. It is also unlawful for domestic residents to be offered virtual currency exchanges from overseas service providers through the Internet.


Hainan Releases Guidelines for Venture Capital Investment in Hainan Free Trade Port

Hainan issued the Guidelines for Venture Capital Investment in Hainan Free Trade Port (2021 Edition), which sets the filing conditions of venture capital firms and published the preferential policies for venture capital companies to be registered in Hainan.

Among the preferential policies, if a venture capital firm is established in Hainan Free Trade Port, it can apply for 70% deductions on its taxable income based on its investment in small and medium-sized tech firms and tech startups; it can pay a lower tax rate of 15% on enterprise income tax.


Application of Simplified Procedures for the Unilateral Advanced Pricing Arrangements

China’s State Administration of Taxation announced the application of simplified procedures for unilateral advance pricing arrangements (APAs), which are arrangements between companies and tax authorities, seeking to obtain certainty in the pricing of cross-border business.

In the general procedure, it is necessary to complete the following steps: pre-filing meeting, intention for an APA, analyses and evaluation, formal filing, negotiations and signing, and monitor and execution.

The new simplified procedure involves only three steps: evaluation of application, negotiation and signing, and monitoring and execution. However, companies intending to adopt the simplified procedure must satisfy a few conditions. Among them, an applicant must have related-party transactions of more than CNY 40 million (approximately USD 6.2 million) for the three years before the tax year in which the tax authorities accept the case.


The Urban Maintenance and Construction Tax

Approved last year in August, the Urban Maintenance and Construction Tax Law (UMCT) was approved by the Standing Committee of the National People’s Congress, which has taken effect starting in September of 2021. Recently, the relevant authorities have issued a clarification on the calculation rate for UMCT.

One of the most significant changes was the additional specifications on how to decide the taxpayer’s location. For example, the location is deemed as the domicile or any other location-related where the taxpayers carry out their business activities. Although the rates remain the same, further clarification was issued. For example, for businesses in cities or urban areas, the rate will remain at 7%, for county or town areas, it will be 5%, while for any other regions different from the previously mentioned, the rate will be 1%.