Greater China Sep

Greater China Updates – September 2021

  • Greater Bay Area launches Wealth Management Connect
  • One Record Filing for Multiple Outbound Remittances
  • Cancelation of the Local Tax Surcharges related to Withholding Value Added Tax (VAT) and Consumption Tax (CT)
  • China’s Crackdown against Cryptocurrencies
  • Hainan Releases Guidelines for Venture Capital Investment in Hainan Free Trade Port
  • Application of Simplified Procedures for the Unilateral Advance Pricing Arrangements
  • The Urban Maintenance and Construction Tax

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%. 

Written by Marant Caballero and Luz Deneb Martínez, Latin Department, CW CPA

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Hongkong city scape

Protecting Your Personal Data by Utilizing Hong Kong’s New Inspection Regime

To further modernize Hong Kong’s company law and the city’s status as a major international business and financial hub, a new Companies Ordinance (Cap. 622) (“the new CO”) replaced the previous Companies Ordinance (Cap. 32) on 3 March 2014. The new CO provides a modernized legal framework for setting up and operating companies in Hong Kong, enhancing better corporate governance and regulations for Hong Kong.

The new CO introduces a regime that seeks to strike a reasonable balance between protecting the privacy and the need for public access to personal data. However, the provisions relating to the restricted disclosure of usual residential addresses (“URA”) of directors and identification numbers (“IDN”) of individuals had not come into full operation when the new CO was enacted in 2014. Currently, any member of the public can obtain information regarding the residential addresses and personal identification numbers (“Protected Information”) of directors and company secretaries of Hong Kong-registered companies on the register of the Companies Registry (“CR”). 

MOVING FORWARD WITH THE NEW INSPECTION REGIME

As public awareness of the need to protect personal data increases, on 16 August 2021, Hong Kong has finally moved forward with the commencement of the New Inspection Regime. Pursuant to the relevant provisions of the CO concerning the New Inspection Regime:

Only correspondence addresses of directors and company secretaries and partial IDN of directors, company secretaries and other relevant individuals will be shown in the Register for public inspection for documents filed after commencement of the new inspection regime;

The URA and full IDN of the individuals (“Protected Information”) will only be made accessible to specified persons upon application. The court may disclose such information if it considers appropriate, and the CR may disclose the URA if it cannot effectively communicate with the director using the correspondence address provided;

Individuals whose Protected Information is contained in documents registered with the CR before the commencement of the new inspection regime can apply to the CR for withholding such information from inspection; and

A company may withhold Protected Information contained in its own registers from public inspection.

PHASED IMPLEMENTATION

Due to the necessity to upgrade the information system of the CR, the New Inspection Regime will be implemented in 3 phases. Under the new regime, it is estimated that the CR will have to process about 1.7 million new documents containing Protected Information every year and will also have to make available about 40 million documents containing Protected Information already registered with the CR for people to apply for masking their Protected Information.

Phase 1:

From 23 August 2021, companies may replace URAs of directors with their correspondence addresses and replace full IDNs of directors and company secretaries with their partial IDNs on their own registers for public inspection.

Phase 2

From 24 October 2022, Protected Information on the Index of Directors on the Register will be replaced with correspondence addresses and partial IDNs for public inspection. Protected information contained in documents filed for registration after the commencement of this phase will not be provided for public inspection. “Specified persons” could apply to the Registry for access to Protected Information of directors and other persons.

Phase 3

From 27 December 2023, data subjects could apply to the Registry for protecting from public inspection their Protected Information contained in documents registered with the Registry (“Withheld Information”) and replace such information with their correspondence addresses and partial IDNs. “Specified persons” could apply to the Registry for access to Withheld Information of directors and other persons.

TRANSITIONAL ARRANGEMENTS

With Phase 1 of the new inspection regime enacted, these are the transitional arrangements for Hong Kong-registered companies:

  • The register of directors of a company need not contain the correspondence address of its director or reserve director who is a natural person (“specified director “) before the company’s first annual return date on or after the commencement date of Phase 2 of the New Inspection Regime, unless –
    • the particulars of the specified director are first entered in the register of directors on or after the commencement date of Phase 2; or
    • any change is made to the particulars of the specified director contained in the register of directors on or after the commencement date of Phase 2.
  • The address of the company’s registered office is to be regarded as the correspondence address of the specified director until whichever is the earlier of the following –
    • the date on which the company enters the specified director’s correspondence address in its register of directors;
    • the company’s first annual return date on or after the commencement date of Phase 2.
  • Before the commencement of Phase 2, a company does not need to deliver to the Registrar of Companies (“the Registrar”) a notice under section 645(4) of the CO for –
    • entering in the company’s register of directors a correspondence address of a specified director; or
    • making any change to a specified director’s correspondence address contained in the company’s register of directors.
    • However, if, immediately before the commencement of Phase 2, a specified director’s correspondence address was contained in the company’s register of directors and such address was not the address of the company’s registered office, the company is required to deliver to the Registrar a notice under section 645(4) in relation to the specified director’s correspondence address within 15 days after the commencement of Phase 2.

EXAMPLES OF PARTIAL IDNs

If the IDN comprises a sequence of an even number of alphanumeric characters, the first half of the sequence must not be withheld. If the IDN contains a sequence of an odd number of alphanumeric characters, the part that begins with the first character in the sequence and ends with the character that falls in the middle of the sequence must not be withheld.

Full ID Number First part of the Number
ABCD1234567 ABCD12
ABCD12345678 ABCD12
ABCD123456789 ABCD123
ABC-123-4 ABC1
#A1234567H(*) A1234

For further understanding and discussion on utilizing the new inspection regime to protect your personal information better, please feel free to contact our Corporate Secretarial Services Team at cosec@cwhkcpa.com.

Sources:

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Hong Kong

Hong Kong: Commencement of New Inspection Regime – Phase 1

On 16 August 2021, Hong Kong’s Companies Registry published external circular no.1/2021 regarding the commencement of a new inspection regime of the Companies Register (“New Inspection Regime”) commencing on 23 August 2021.

From 23 August 2021, companies may withhold from public inspection the usual residential addresses of directors and full identification numbers (“IDNs”) of directors and company secretaries as contained in the registers of directors and registers of company secretaries kept by the companies.  In such cases, companies are to make available for public inspection on their own registers correspondence addresses of directors and partial IDNs of directors and company secretaries.

According to Phase 1 of the New Inspection Regime, a Hong Kong company, in addition to providing the usual residential addresses of directors, must also provide the particulars of the correspondence address of the directors into the registers of directors, and the addresses must not be a post office box number.

Details relating to the transitional arrangements can be found at https://www.cr.gov.hk/en/publications/docs/ec1-2021-e.pdf

Source: Companies Registry, Hong Kong SAR

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greater china

Greater China Updates – August 2021

  • The FDI increases in China, despite tensions worldwide
  • The FDI enters into China through Cross-border E-Commerce
  • The new Stamp Duty Law in China
  • Companies in Shanghai will no longer have their Corporate Income Tax based on a general assessment
  • Data Security Law (DSL) will take effect on 1 September 2021
  • E-contracts for employees in China

The FDI increases in China, despite tensions worldwide
The global pandemic, the financial crisis, and the trade tensions have not stopped China from becoming a leader in attracting foreign investment again. Some of the existing foreign investments in the market are currently struggling. Meanwhile, others and expanding, and thousands of new ones are being established, reaching a new all-time high again. Many of these are non-financial investments and reinvested profits of existing ones. Regarding foreign trade, the half-year of 2021 has been the best performance in history, thanks to its rapid recovery from COVID.

In June alone, there has been an increase of 26% in import-export. China will continuously review the Negative List again for FDI to accelerate the growth, announced on 24 June 2021. The new regulations will optimize the interchange of products to benefit the local market and allow Western goods to be sold in the biggest middle class in the world.

The FDI enters into China through the Cross-border E-Commerce
According to the Ministry of Commerce, China will expand pilot zones to create new competitiveness in foreign trade. Many cities across China have proactively submitted applications to establish pilot zones and compete with their neighbors. As a result, this industry has been expanding faster than expected, and businesses are aware of its potential, creating new opportunities for all agents in the supply chain. There are now more than one hundred cross-border e-commerce pilot zones in China, making cross-border e-commerce a significant driver of the economy.

The new Stamp Duty Law in China
Coming into effect on 1 July 2022, the Stamp Duty Law will replace the prevailing Stamp Duty Provisional Regulations passed by the State Council in 1988.  The Stamp Duty Law covers the definition of taxpayers, taxable scope, stamp duty rates, tax basis, and preferential stamp duty treatment. No fundamental changes are made to the current stamp duty system.

One of the key differences is the levy of stamp duty on security transactions, including the transfer of stocks and stock-based depositary receipts traded on stock exchanges and other national securities trading venues.

Companies in Shanghai will no longer have their Corporate Income Tax based on a general assessment; now, it will be based on the audited accounts
The Shanghai Tax Bureau announced a decision which came into effect on 1 August 2021, confirming that the general taxpayers in Shanghai, including sole proprietors and partnerships, would change their current general method to the audit method of their accounts, which would be the base for the collection of the Corporate Income Tax.

The purpose of this decision is to regulate companies which have handled unreliable accounts, which could easily exploit the general method by not reporting profits correctly. However, up to this moment, it is not clear whether this new measure will affect the small-scale taxpayers.

Data Security Law (DSL) will take effect on 1 September 2021
China’s Data Security Las (DSL), published on 10 June 2021, will take effect on 1 September 2021. DSL states the scope and application, data classification protection, data security mechanisms, protection responsibilities, and penalties for violations. However, DSL itself provides only broad and generic terms and descriptions. It is expected that soon the authorities will release more details on the compliance, implementation, and execution of the DSL.

E-contracts for employees in China
Chinese General Office of the Ministry of Human Resources and Social Security (MHRSS) has issued new guidelines concerning electronic employment contracts on 1 July 2021. The key points of this new set of guidelines are as follows:

  • Contracts should be signed through proper platforms that allow parties to sign the electronic contracts, such as FADADA or Esign.

  • E-contract signing platforms should be able to verify IDs, affix e-signatures, verify permission,  protect data, corroborate the signatory’s confirmation and permission through mobile messages, biometric recognition, and store the confirmation notifications.

  • The protection, generation, and storage should comply with the relevant laws in PRC.

  • The employer must inform the employee of the details of the execution of the e-contract. The notification can be done virtually through WeChat, SMS, emails, or any other app. In addition, the employer must inform the employee how to download the contract and remind him to download and store the e-contract.  The employees must not be charged by the employer for access and use to such platforms.

Written by the Latin Department, CW CPA

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Tax-Exempt

A Look Ahead at the Expiring Tax-Exempt Fringe Benefits for Expats in China

With global tax revamp afoot, multinational companies are facing more tax-related challenges operating across the globe. However, changes are inevitable. China will follow the change to reform its taxation policy over the next five years.

Since 1994, China has granted its working foreigners tax benefits via its individual income tax policy. This preferential policy granted the tax-free status for 8 categories of expenses including rent, children’s education, language training, meal, laundry, relocation, business travel and home visit expenses.

However, it has now become the most prominent concern to expats, as two years ago China decided to end the preferential policy to equalize benefits between local and foreign workers.

In a policy implementation document Cai Shui [2018] No. 164, China set a transition period to allow companies and expats a three-year period in preparing for transiting from the existing preferential policy to the unified Special Addition Deduction policy.

During the period from 1 January 2019 to 31 December 2021, a foreign individual who satisfies the resident individual criteria may opt to claim special additional deductions for individual income tax as Chinese residents or opt to continue enjoying the existing preferential tax-exemption policy. Once the foreign individual decides on which tax deduction policy he/she wishes to enjoy, the option cannot be changed within a tax year.

Most expats working in China still prefer opting for the existing tax exemption policy for the 8 tax-exempted allowances, of which the purpose was to attract high-level foreign talents to relocate and work in China.

In principle, under the existing tax exemption policy, allowances can be exempted from individual income tax so long as the expenses incurred are reasonable with legitimate supporting documents. Due to discrepancies of consumption levels among different cities, the amount of allowances which can be deemed as reasonable is different city by city. However the existing tax-exempt policy provides a much higher amount of deduction for IIT purpose compared to the Special Additional Deduction Policy introduced by the new IIT Law. Additionally, compared to the preferential tax-exempt policy for expats, the Special Addition Deduction policy provides deductions in fixed amounts. This exposes their pre-tax income to China’s 45% top income tax rate.

After the expiry date, expats in China must follow the same deduction method as Chinese residents according to the revised Individual Income Tax Law (IIT Law) which was enacted on 1 January 2019. If conditions are met, Chinese residents deriving comprehensive income can claim deductions on child education, continued education, mortgage interest, rental expense, elderly care and major medical expense when calculating the annual taxable income using the Special Addition Deduction policy.

Alongside, foreign companies have become increasingly worried as the deadline (31 December 2021) approaches. It is estimated that the change would force a multinational company to pay an additional 785,000 yuan (US$119,000) in taxes for a foreign employee with two children receiving a typical allowance of 960,000 yuan (US$145,500) for housing and school tuitions annually. The employee would have to pay extra tax of 432,000 yuan per year.

As an example, consider rental expenses. Imagine that a multinational company headquartered in Brazil sends a Brazilian technician to its Chinese subsidiary located in the city of Shenzhen. According to the accommodation standard provided to the expatriates in Shenzhen, the reasonable range of monthly rent for this Brazilian expatriate may be from RMB 8,000 to 10,000. The Brazilian technician can deduct the actual cost of renting the apartment before taxes so long as his/her monthly rent is within the reasonable range. However, if a Brazilian technician chooses the Special Additional Deduction Policy, the maximum deduction for his/her rent is only RMB 1,500 per month, which is drastically lower than using the existing tax-exempt policy.

Considering the upcoming inevitable changes, responding to the expiration of the transition policy cannot be overlooked. Taking no action will certainly cause a substantial rise of foreign employees’ individual income tax burden. Given this expected outcome, what actions can a business take to reduce the impact on its financial operations? Here are our suggestions:

Cashflow planning

Review the status of foreign employees already in China, including their salary and benefits, and estimate the increased tax burden according to special additional deduction policy. Timely adjust the company’s cash flow plan according to the increased tax burden.

Modification of Labor Contract

Review the labor contracts of existing foreign employees. If it is necessary to modify, consult the relevant legal personnel to modify the relevant provisions.

Provide training to foreign personnel

Foreign personnel must be trained and given proper guidance on the special additional deduction policies. Employers should assist employees to determine the amount of each special additional deduction item and clearly inform foreign employees of their rights and obligations.

Although there is no official explanation for the termination of the existing tax-exempt policy, it is undeniable that the increase in the tax burden of existing foreign employees will ultimately be transferred to the companies. In such case, the operating cost of hiring or dispatching foreign personnel will substantially increase. 

Businesses always try to reduce costs. Considering cost control for businesses with the new change, foreign companies would be more cautious about whether to invest in China in the future. In addition, existing multinational enterprises would also be more cautious in planning the dispatch of foreign personnel to China.  

Written by Delilah li, CW CPA

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Young handsome businessman with tablet in subway

Navigating in the New Normal – How could CW help

2020-2021 marks the end of the status quo for many companies, especially for the micro-, small- and medium-sized enterprises.  Despite the economic impact of COVID-19, CW has always relied on the strong relationship with our clients and become their key business advisors, helping them to remain resilient in business. In summary, we have observed the following trends during the past year:

  • Travel restrictions are forcing companies to accept remote work. As a result, a hybrid work model emerges as a combination of remote and office workers creates new work dynamic.

After experiencing how flexible, successful, and convenient telecommuting is to the business, it is no wonder flexible working hours and remote work practices are highly favored in the New Normal. Indeed, adopting flexible work arrangements would cause a shift in administrative organization and extensive spending on technology and management. Remote work offers various benefits to both employers and employees. For instance, it could enhance workplace morale as staff could better control their work with reduced traffic necessity, and a better work/life balance could also boost the employee’s productivity.

  • The accountant’s role has moved from simple advisors to drivers of strategy, steering clients through different business, operational and financial challenges in finance.

Faster access to the Internet and advanced technology have revolutionized the accounting profession. Automation tools improve work efficiency by shortening the time needed in preparing and calculating budgets and taxes. This promotes the trend in accounting firms of taking in recruits from a ‘non-traditional’ practice background, meaning individuals must equip themselves with broader advisory skills and crisis-management techniques. It is crucial and highly valued for accounting advisors to recognize clients’ issues and bring feasible solutions. Team members’ all-rounded business ability routes an advanced company portfolio, thus, leads to a rewarding future for private firms.

  • There is no flexibility in growing the business without digitization.

Under the New Normal, businesses start to witness the significance of digital transformation. It enables firms to remain competitive and relevant to the world phenomenon. Walking away from long-standing practice challenges the status quo, but integrating digital technology into business areas also lay a robust foundation for later change-management initiatives. Digitization allows decision-makers to get ahead of mistakes without conducting extensive experimentation. It also encourages collaboration and enhances office performance. Work is no longer bounded by location and time, giving your business flexibility with international clients.

Give the above trends, how can CW innovate with limited resources in a way that will create services that are meaningful to our clients?

  • Consultancy and implementation support go hand-in-hand.

Laying out a strategy is essential. So is implementation. Sometimes, we have to think about first how to implement the steps to achieve our clients’ goals. For example, it is useless for our consultants to pitch the advantages of setting up a China company without giving them practical solutions to successfully opening the bank account. Faced with travel restrictions, foreign nationals who wish to act as the Legal Representative of their China subsidiary may find it impossible to complete the company set-up project and start doing business quickly.

To realize our clients’ ambitions, our China-business experts shall understand the situation and set up the most appropriate entry model in China under current constraints. We offer all-rounded support to your business by incorporating local laws and compliance rules to ensure success. Besides, our tax, accountancy and legal professionals have a strong passion and sense of practicality in dealing with China issues. We are familiar with all the required business actions when cruising the Mainland China market. With our compelling consultancy and implementation support, your business shall stay ahead of the competition and take the market lead in this turbulent time.

  • Be your virtual CXO in Hong Kong and the Mainland China

Expanding into the Hong Kong and Mainland China market has been a business milestone for many. With on-going travel restrictions in many countries, the time and effort spent dealing with finance, human resources, and recruiting needs translate into more costs. Our experienced, virtual CXOs are here to support your business growth and to cope with the inevitable New Normal.

Apart from our typical accounting and consultancy services, our team of business professionals is sophisticated with various industries’ knowledge. We not only recognise your field and needs but also tailor-made a business strategy for you. Without the burden of hiring and managing an in-house accounting department, the firm could focus on its clients whilst our team offers comprehensive support to take the weight off your shoulders and achieve your business enthusiasm in Hong Kong and Mainland China!

  • Digitalize your business processes by adopting cloud accounting

Gone are the days when you have to painfully collect business records, invoices, contracts, bank statements and send them to your external accountants. Cloud accounting is here to answer all your needs. Cloud accounting software like Xero boosts work efficiency by streamlining the bookkeeping process and providing a real-time overview and data analysis. As all data files are kept online securely, it allows access and collaboration between advisors and clients at all places and at any time. The automation tool also gives fast and accurate access to detail financial breakdowns, management information and different metrics. Digitalizing business processes also facilitate cross-department collaboration, improve productivity, and generate more profit. Cloud accounting powers organizations to optimize work processes and power employees by freeing their time from manual work and channeling more effort into the business.

With no foreseeable end to the pandemic, the key step for organizations is to start investing in virtual services. Digital solutions and connectivity have helped us navigate through the storm and play a vital role in dealing with the pandemic. The New Normal is here, and the time to go digital is now.

Written by Delilah Li and Claudia Tam, CW CPA

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Tax incentives to attract talents to the GBA

The Chinese Government has linked the largest urban cities to develop the world’s biggest urban area, The Greater Bay Area (GBA). The cooperation between the 11 member cities aims to develop further and improve multiple sectors, including technology and innovation, infrastructures, and transportation networks, ultimately building job opportunities. However, alongside comes many challenges. One is attracting talent. Hence, the question arises, how does the government aim to attract this talent who will be the driving force of this ecosystem? 

In March 2019, The Ministry of Finance and the State Administration of Taxation announced the “Preferential Individual Income Tax Policies in GBA” that will be implemented between 1 January 2019 and 31 December 2023 in the 9 cities.

The incentive would allow workers to balance their tax expenses and parallelly allow employers to benefit by reducing the employment cost via tax rebate. The government brought this tool for Individual Income Tax to leverage foreign profiles from Mainland China and Hong Kong, Macao, and Taiwan, motivating them to consider GBA as an option and retain them.

The subsidies are calculated based on the following items:

– Comprehensive income (wages, salaries, labor compensation, remuneration of independent services, royalty income) and an excess progressive tax rate of 3% to 45% is applicable.

Less than 36,000 yuan

3%

36,000 – 144,000

10%

144,000 – 300,000

20%

300,000 – 420,000

25%

420,000 – 660,000

30%

660,000 – 960,000

35%

Above 960,000

45%

– Operating income, an excess progressive tax rate of 5% to 35% is applicable

Less than 30,000

5%

30,000 – 90,000

10%

90,000 – 300,000

20%

300,000 – 500,000

30%

Above 500,000

35%

– Other income – 20% proportional tax rate is applicable (interest, dividends, bonuses, property lease, property transfer, and incidental income)

– The subsidy is calculated by the following method: Individual Income Tax – Taxable Income in sub-items x 15%.

 

Though the policy aims to promote the whole GBA, local rules differ when assessing the profiles of the talents applying for the subsidy. Each city has different requirements qualifying workers as “Talent in short supply” or “High-end talent”. Therefore, workers need to meet conditions based on each local area in the 9 cities.

Ralph Waldo Emerson said, “Of all debts, men are least willing to pay their taxes”. With now tax incentive in place, motivating workers to consider GBA and attracting talent would be smoother. However, being qualified for the subsidy or dealing with several government institutes in applying for the tax incentive may be difficult. Therefore, it’s highly recommended to consult with a professional tax advisor.  

For more information, feel free to contact Ms. Phenix Zheng:  phenix.zheng@cwhkcpa.com.

Written by Anselm, CW CPA

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Greater China Updates – July 2021

Greater China Updates – July 2021

  • The world turns the compass to Asia
  • Current and future trends of FDI
  • The e-fapiao and the electronic invoice system of China
  • Tech companies in China: Will there be a tax for the use of data? 
  • China to issue more regional bans on cryptocurrencies mining
  • Cross-border: SAFE issues more QDII quotas
  • Changes in the tax requirements for IP transactions
  • Hong Kong is allowing the registration of foreign funds
  • Agreement between the Asian Infrastructure Investment Bank and the Department of Justice of  Hong Kong
  • Hong Kong traveling updates

The world turns the compass to Asia
Insights on China’s economy in the first half-year give us the result that the foreign direct investment increased by 29% year on year, with the high-tech service industry as the number one sector in terms of growth, an astonishing 43%.

Regarding foreign trade, China also experienced one of the biggest rises in history due to the world’s global demand for Chinese products, by 27%. On the digital side, cross-border e-commerce also experienced a solid expansion with an increase of 29% year on year.

Despite the pandemic, Asia has been the only region globally with positive FDI growth currently, and China was the largest recipient of foreign investment in 2020. At the same time, the government took measures immediately to boost domestic consumption and depend less on overseas demand. For the second half of the year, this steady growth will continue at a higher rate than the global average.

 

Current and future trends of FDI
China will continuously but slowly open up domestic markets that have been restricted for foreign investors. As a result, the negative list will steadily be reduced gradually and allow foreign-invested projects to test the waters in the finance, education, or energies industries. At the same time, some sectors and policies will have to be adjusted to balance income levels and promote domestic consumer spending.

Authorities will adjust policies according to the current situation based on the rest of the world’s economic stability. Therefore, the levels of foreign trade might vary once the countries get stabilized after the pandemic.  Data shows China might reach a 6% of GDP growth but with its challenges that still need to be solved, such as the high number of graduates this year and the slightly higher level of unemployment. In addition, due to economic difficulties during the last months, some households are also more budget concerned, and spending is more controlled. 

The e-fapiao or electronic invoice system of China 
In a constant effort to improve the business environment, the tax bureau of China launched a pilot system to transform their invoicing system into an electronic format. The system intends to implement technology and facilitate daily use for businesses with a high volume of transactions, especially those related to retail and e-commerce. A positive effect of using the electronic system is that the operation cost and time will be reduced. The security will be increased since every invoice will have a unique number that cannot be repeated.

While the program started with a few cities, the scheme has expanded to have nationwide validity. First, it’s important to know the difference between the fapiaos. The general fapiao is non-tax-deductible, while the special VAT fapiao can be used to deduce taxes.

Tech companies in China: Will there be a tax for the use of data? 
A recent debate over data management and security has emerged in China with the current news of banning car-hailing giant Didi Chuxing from the local App stores. While most of the world came to a standstill with the Covid-19 pandemic, the digital business in China was one of the sectors that grew the most. Unlike other parts of the world, in China, a few tech companies dominate the online shopping, mobile payments, delivery services, or car-hailing services landscape. With it, they gather important amounts of data from their user base. It has come to the attention of the authorities that the current data law and antimonopoly practices need to address a few points such as data ownership, and how the users can be protected if the data is taxable, etc. Even though this debate it’s in its early stages, we need to be observant of changes to come for the tech industry. 

China to issue more regional bans on cryptocurrencies mining
The State Council of Financial Stability and Development Committee released a statement on 21 May 2021, indicating that there will be more strict measures to control the bitcoin mining and trading activities, as part of the efforts to fend off financial risks, other provinces, mining hubs in China’s north and southwest regions, such as Sichuan, Inner Mongolia, and Xinjiang have issued an outright ban on cryptocurrency mining, ownership, and trading.  These bans mean that more than 90 percent of China’s bitcoin mining capacity, the world’s biggest Bitcoin mining country, with a total estimated of about 20-30 percent of the world’s Bitcoin computing power, will have to be shut down, at least for the short term.  
Simultaneously, the government is on the way to launch its own centralized digital currency, which serves as a sign of the strong determination to curb speculative crypto trading to control financial risks, despite the economic benefits that they might have for local economies, especially those with chronic electricity supply problems. 

Cross-border: SAFE issues more QDII quotas 
On 1 June 2021, China’s State Administration of Foreign Exchange issued a new qualified domestic institutional investor (QDII) quota for an amount of US$10.3 billion, benefiting 17 financial institutions and facilitating the country’s two-way capital market opening-up. These 17 financial institutions include funds, securities firms, banks, and insurers. 

Changes in the tax requirements for IP transactions
On 10 June 2021, the Standing Committee of the People’s Republic of China passed the Stamp Duty Law reform. Effective from 1 July 2022, there will be recent changes in the Stamp Tax Law; this is concerning intellectual property rights. In summary, the changes will apply to certificates (trademark and registration) where the stamp duty of RMB 5 will not be imposed and a diminution of the tax rate charged to IP transactions, such as copyrights and patents, from 0.05% to 0.03%. 

Hong Kong is allowing the registration of foreign funds
On 7 July 2021, the motion for the second reading of the 2021 limited partnership fund and business registration legislation (amendment) bill was proposed. As illustrated in the bill, qualified foreign funds could register and run their businesses in the form of open-ended fund companies/ limited partnership funds in Hong Kong.

The bill’s goal was to stimulate foreign investment funds entry to Hong Kong by refining the system for fund re-domiciliation.  According to the statistics published on 13 July by the Companies Registry, the number of newly established companies was 56,253, which was 11% higher than the previous period. For non-Hong Kong company registrants, the number was 662. 

Agreement between the Asian Infrastructure Investment Bank and the Department of Justice of Hong Kong
On 29 June 2021, the Department of Justice of HKSAR established an agreement with the Asian Infrastructure Investment Bank on a 12-month secondment of its legal officers to the bank’s legal department. Such arrangement is foreseen to deepen local legal officers’ understanding of the operations of international institutions and stimulate knowledge gain from international legal professionals, ultimately benefiting the development of the Hong Kong legal field. Besides, the motion for the second reading of the Sale of Goods (United Nations Convention) bill was put forward on 14 July 2021. The bill introduces the Contracts for the International Sale of Goods, a globally adopted commercial law with 94 contracting states. The bill is intended to solidify Hong Kong’s legal infrastructure and its position for international trade and dispute settlement.  

 

Hong Kong travel updates
From 25 June 2021 onwards, Indonesia is regarded as a Group A1 country, and inbound travelers from Indonesia in Hong Kong are forbidden. A similar arrangement was imposed on the United Kingdom starting from 1 July 2021. The Hong Kong government implemented such measures to prevent the further spread of the Covid-19 Delta variant in the local communityIn addition, Russia was classified as Group A2 on 16 July 2021 by the Hong Kong government. When boarding to Hong Kong, travelers who stayed in Group A2 countries within 21 days are required to provide validations on negative polymerase chain reaction-based nucleic acid test results as well as 21-night booking confirmations on specified Hong Kong quarantine hotels. 

Written by the Latin Department, CW CPA

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Expanding Your Business in Hong Kong

Doing Business in Hong Kong 

Hong Kong has maintained its position as part of the world’s most competitive economies with its open business environment for local and overseas enterprises. The International Institute for Management Development (IMD) World Competitive Yearbook 2020 ranked Hong Kong 5th out of 63 economies. Highlights of doing business in Hong Kong include:  

Ranked the one of the freest economies around the globe, Hong Kong is an ideal place for businesses ranging from small and medium-sized enterprises to multinational companies to grow internationally. As you may be aware, one of the requirements for setting up a limited company in Hong Kong is having a company secretary.   

How can CW help? 

Our Corporate Secretarial Department offers corporate governance and secretarial services to different types of entities, including multinationals, Hong Kong incorporated companies, and offshore companies. 

1. Business Formation 

Our experts can advise on the type of entity and walk you through the journey of the business establishment so that you can expand your business in Hong Kong at ease and be better prepared for entering the market of Mainland China by using the Mainland and Hong Kong Closer Economic Partnership Arrangement (“CEPA”). 

2. On-going Company Secretarial Services 

As a trusted service provider, we provide efficient and reliable support to businesses in compliance with laws and regulations, including company secretary, designated representative, and registered office services – but it does not end here. Our experts have in-depth knowledge that can be your governance liaison on behalf of your company. Whether you require assistance in preparing prescribed forms or minutes, reviewing corporate documents, or advising on dissolving the company, we are ready to help you.  

3. Bank Account Opening in Hong Kong 

The bank account opening procedure can be complicated. Over the years, we have been working closely with HSBC, Standard Chartered Bank, and Citibank to provide business solutions for different types of entities. Whether you wish to set up online banking or bank account opening, we can assist you in the liaison work.  

4. Human Resources Support 

To boost both productivity and commitment among the employees, you can offload some human resources processes to focus more on strategic management and business expansion.  

Retaining employees is one of the key to grow a successful business. Overseas directors and managerial staff who seek to manage and oversee their business more closely require employment visa permits to work in Hong Kong. Our experts can assist your non-local staff in the application for employment visas to better manage your business in Hong Kong. By outsourcing part of your administrative formalities, your company can have more confidence in complying with the relevant regulations and provisions. Our HR process outsourcing services include:  

  • Talent Mobility Solutions 
  • Payroll Outsourcing 
  • Entry & Mid-level Recruitment  

Why spend time or money managing an in-house HR team if you can hire professionals to manage HR functions more effectively? Start by contacting us now!  

5. Legalization 

Occasionally, a Notary Public may be required to certify the authenticity of a document. Notarization can be a tedious task which imposes some difficulties in completing most of the transactions and fulfilling requirements set by the authorities. With our connections to various law firms, we can assist you in going through the procedures of notarization, legalization, and apostille.  

6. Trademark Registration 

Trademark is a sign to distinguish the goods and services of your company from the others. If other traders use your trademark in Hong Kong, they may be liable for infringement of your trademark. Likewise, if you do not register your trademark, it is difficult to claim that you are the owner. CW can assist in the registration of your trademark in Hong Kong to protect your brand and further increase your competitiveness.  

7. Closing a Hong Kong Limited Company 

CW’s Corporate Secretarial Team has strong and experienced specialists who can advise you on closing down your company through deregistration. Work efficiently and effectively with us as we provide you the care and solutions you need! 

Hong Kong is a perfect spot for investors to consider because it has no interest tax with higher deposit revenues. We work closely with our clients to ensure compliance with the Hong Kong regulations so that their businesses can run smoothly. 

Written by Connie Pak, Company Secretarial Department, CW CPA

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Connect World Jun 2021 Images

Greater China Updates – June 2021

  • Relevant FDI cases for 2021
  • China keeps relaxing restrictions on FDI
  • Reminder about the tax filing deadlines for 2021
  • China is expanding the use of its digital currency
  • China is changing the rules for food exporters
  • New updates on traveling restrictions to Hong Kong

FOREIGN DIRECT INVESTMENT

Relevant FDI cases for 2021 

Since the beginning of the year, despite the economic impact of COVID-19, foreign companies see China as one of the top destinations for investment. 

A major FDI case is the chemical production site that involved a USD 10 billion investment in Guangdong. Another is a power chips company that is investing in a plant in Jiangxi. A sign of China’s opening policies is Allianz, a German insurer that has now obtained approval to set up an insurance asset management company as a Foreign-Invested Enterprise, the first one in all China fully funded by foreign capital. Samsung is building a multi-layer ceramics capacitors plant in Tianjin. Global Logistics Properties established a fund of 4.5 billion RMB for modern logistic assets in Shanghai. The Ministry of Commerce said China would keep reviewing the negative list to attract more investment, guarantee speeding up processes in implementation, protect the rights of foreign investors, and improve transparency and convenience.

 

China keeps relaxing restrictions on FDI

The Ministry of Commerce has publicized its plans to ease the restrictions for foreign direct investment, serving as an official announcement and a sign for its long-term plan to be the number one recipient of investment.  The Foreign Investment Law and the opening of the stock market also depict its relaxation on FDI restrictions. According to the Ministry of Commerce, foreign direct investment into China has incurred a 38.6% year-on-year surge.

Over the years, China has highly invested in world-class airports and high-speed railways, transforming itself into a strategic marketplace to compete with the largest urban areas such as San Francisco, New York, and Tokyo. For example, the Fortune 500 company Proctor & Gamble has invested USD 100 million and plans to launch an intelligent technology innovation center in Guangzhou.


FINANCE & TAXATION

Reminders about the 2021 Tax Filing deadlines

As we finish the first half of the year, it is important to keep notes of the deadlines to file the monthly taxes in Mainland China. It is mandatory to make a tax declaration on the 15th of every month. However, there are times when deadlines fall on public holidays. For these specific scenarios, the government provided a calendar with adjusted due dates as follows:

  • MayDeadline on the 18th of June (Dragon Boat Festival Holiday). 
  • June: Deadline on the 15th of July.
  • July:  Deadline on the 15th of August.
  • August: Deadline on the 15th of September.
  • September: Deadline on the 26th of October (National Week Holiday).
  • October: Deadline on the 15th of November.
  • November: Deadline on the 15th of December.
  • December: Deadline on the 15th of January of 2022.

Keeping these deadlines in mind will help you avoid penalties and ensure proper company compliance.

 

China expands the use of its digital currency

To reduce their dependency on foreign currency and expand their international presence, the Chinese government authorities launched the digital yuan, also known as E-Yuan, widely known through the term ‘Digital Currency Electronic Payment’ (DCEP). Commencing trials in a few cities last year in April, the program has expanded to major cities, and it’s even contemplated being used for the 2022 Winter Olympics in Beijing.

Local stores and platforms accepting the digital yuan are rapidly expanding, with other banking institutions joining the initiative. It is expected that the trial finishes by the end of 2023 to evaluate the overall implementation, flaws, security threats and see what other technological advances can be implemented. 

 

TRADE & CUSTOMS

China considers changing the rules for food exporters

PRC has recently published two revised decrees that would enforce substantial requirements for foreign companies that export food and beverages to China.

The two decrees are:

  • Decree 248 on food facility registration: All the foreign companies related to the food export industry, including producers, processors, as well as storage facilities, to be registered with the General Administration of Customs of China (GACC) to export products to China.  
  • Decree 249 on food importation: The GACC will launch new enforcement instruments to suspend and/or prohibit food products from being imported into China if the companies violate applicable Chinese laws and regulations.

Both decrees are scheduled to be enforced on 1 January 2022.

 

TRAVELING RESTRICTIONS IN HONG KONG

According to the information provided by the government of Hong Kong, compulsory quarantine has been shortened for fully vaccinated residents. In addition, people arriving in Hong Kong who have not stayed in places listed in Group A1 or Group A2 (classified as extremely high risk or very high risk) will be allowed a shortened quarantine period of 7 days if they meet the 3 conditions below: 

  • Be fully vaccinated with a vaccination record, 
  • Obtain a negative nucleic acid test result during the test-and-hold period upon arrival,  
  • Possess positive result proof of a recognized serology antibody test conducted within the past three months. 

They must also take two nucleic acid tests during quarantine, followed by seven-day self-monitoring and compulsory testing on the 12th, 16th, and 19th days of arrival in Hong Kong. 

For more information, please click on the following link: https://bit.ly/3wTZA2j.

Written by the Latin Department, CW CPA

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