Personal Information Protection Law of China (2)

Greater China Updates – October 2021

  • China to impose higher fines to businesses operating in Mainland without a local legal entity from 1 March 2022
  • Personal Information Protection Law coming into force on 1 November 2021
  • Supervision and Administration of Cosmetics for Children to be enforced on 1 January 2022
  • Administrative Provisions on Commodity Classification of Imports and Exports
  • Credit Investigation Business on the rise in China

China to Impose Higher Fines to Business Operating in Mainland without a Local Legal Entity from 1 March 2022
Any company running a business in Mainland China which needs to hire staff must establish a legal entity. Violators will be subject to higher fines, which will go from RMB 10,000 to RMB 100,00 from 1 March 2022 onwards.  

Foreign companies that employ individuals or independent contractors to explore the China market will be targeted as well. Even though the authorities might not be able to impose the penalty on a foreign entity, they could decide to blacklist the foreign company, pushing local Chinese business partners such as suppliers and customers away from them, which can negatively impact the foreign company’s business in the Chinese market.  

Moreover, locally established entities hiring employees through an entity in one city but deploying the staff to perform duties in another city (such as one hiring an employee via an entity in Shanghai to carry on business in Guangzhou) might be liable and punished. 

 

Personal Information Protection Law Coming into Force on 1 November 2021
The Personal Information Protection Law (“PIPL”) will come into force on 1 November 2021, setting requirements for the processing of personal information of natural persons within the territory of China. PIPL also applies to the processing of the personal information of natural persons within China that takes place outside the territory of China under the circumstances where the purpose is to provide domestic natural persons with products or services or analyze domestic natural persons’ activities.

For a more detailed analysis of the PIPL, please read our article Personal Information Protection Law in China.

 

Supervision and Administration of Cosmetics for Children to Be Enforced on 1 January 2022
To strengthen the supervision and administration of cosmetics for children, the National Medical Products Administration has organized the formulation of the Provisions for Supervision and Administration of Cosmetics for Children (“Provisions”), which will come into force as of 1 January 2022.

All businesses in the production and operation of cosmetics for children in China should comply with these provisions. The term “cosmetics for children” refers to cosmetics that are applicable to children below 12 years old (inclusive) and have the effects of cleaning, moisturizing, refreshing, and UV-blocking. Products marked with words such as “for the whole population” or “for family use” or implied by trademarks, designs, homophones, letters, Chinese pinyin, numbers, symbols, packaging forms, etc. that the users of the products are children shall be subject to administration as cosmetics for children.

As of 1 May 2022, any cosmetics for children that are applied for registration or filed for record shall be labeled and marked in accordance with the Provisions. For any cosmetics for children that are applied for registration or filed for record previously but fail to be labeled and marked in accordance with the Provisions, the cosmetics registrant or record-filing party shall update the product label before 1 May 2023 to bring the product in compliance with the Provisions.

 

Administrative Provisions on Commodity Classification of Imports and Exports
The Administrative Provisions of the Customs of the People’s Republic of China on Commodity Classification of Imports and Exports (“Provisions”) will come into force on 1 November 2021. The adoption of these Provisions has caused extensive concern of import and export companies. These provisions focus on adjusting and clarifying the scope of management, legal basis, management requirements of commodity classification. Some highlighted provisions include:

  • In examining and determining the commodity classification of the goods as declared by a consignor/consignee or the agent, the Customs may require the consignor/consignee or the agent to provide necessary samples and materials related to the goods, including Chinese translations of the materials in foreign languages.

  • Suppose the materials provided to the Customs involve any trade secret, undisclosed information, or confidential business information, and the Customs is requested to keep such materials confidential. In that case, the consignor/consignee or the agent should make a written request to the Customs detailing the contents that need to be kept confidential. Otherwise, no consignor or the consignees or the agents thereof may refuse to provide relevant materials to the Customs on the ground of trade secrets.

  • When necessary, the Customs may test and examine the attributes, ingredients, contents, structure, quality, specifications, etc., of imported and exported goods and take the test and examination results as the basis for commodity classification following the national and industrial standards.

 

Credit Investigation Business on the Rise in China
The People’s Bank of China has issued the Administrative Measures on Credit Investigation Business (“Measures”), which will come into force on 1 January 2022. These measures will apply to businesses that collect, collate, maintain, process credit information of companies and individuals and provide such information to users. The Measures stipulate that the credit investigation agencies must obtain the information subject’s consent and state clearly the purpose before collecting personal credit information.

They should also carry out a necessary review on information sources, information quality, information security, and information subject authorization. In addition, the users of credit information should use such information for legitimate purposes and obtain the explicit consent and permission of the information subject. The Measures are entirely in coherence with the Personal Information Protection Law provisions coming into effect on 1 November 2021.

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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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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

Newsletter

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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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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China

Greater China Updates – May 2021

    • Foreign Direct Investment keeps breaking records in 2021
    • China has become the biggest receptor of Foreign Direct Investment inflow
    • Changes in tax rebates on exports
    • Individual Income Tax policies that will change on the 2022
    • China increases and extends the VAT exemption threshold for small-scale taxpayers
    • State Administration of Taxation requires local tax authorities to increase the portion of enterprises to be selected for tax inspection
    • China’s Transfer Pricing – contemporaneous documentation
    • Hong Kong’s Inland Revenue Department issued over 2.6 million tax returns to individuals
    • China keeps on with its opening up strategy
    • Personal data protection in China
    • China’s crackdown on malicious trademark registration
    • China accepts US travelers inoculated with American-made vaccines
    • Hong Kong tightened quarantine regulations

FOREIGN DIRECT INVESTMENT

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. 

 

TAXATION & FINANCE

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   documentation? 
  • 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. 

 

TRADE & CUSTOMS

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. 

 

IT & DATA PROTECTION

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. 
 
 

TRADEMARK

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. 

 

TRAVELING UPDATES

China accepts US travelers inoculated with American-made vaccines 

On 21 April 2021, the Embassy of China in the US issued a notice on the testing requirements for China-bound passengers departing from Dallas after inoculated with COVID-19 Vaccines. US passengers vaccinated with American-made non-inactivated vaccines, namely Pfizer, Moderna, and Johnson & Johnson, can travel to China. Please visit the Embassy’s website for specific requirements and documentation: Notice on the Testing Requirements for China-bound Passengers Departing from Dallas after Inoculated with COVID-19 Vaccines.

 
Hong Kong tightened quarantine regulations

People who have stayed in Taiwan on the day of boarding or during the 14 days before that day have to present at boarding proof of a negative nucleic acid test result conducted within 72 hours before the flight’s scheduled departure time, as well as the confirmation of a room reservation in a designated quarantine hotel in Hong Kong. Upon arrival in Hong Kong, they will be subject to the test-and-hold arrangement at the airport, and on confirmation of negative test results, they will be required to board designated transport arranged by the Government to proceed to the designated quarantine hotels for compulsory quarantine. Non-Hong Kong residents will be denied entry.  People who are not fully vaccinated will be subject to a mandatory 21-day quarantine at designated quarantine hotels and undergo four tests during the period. 

Those fully vaccinated will be subject to a 14-day compulsory quarantine at designated quarantine hotels and undergo three tests during the period, followed by seven days of self-monitoring as well as compulsory testing on the 16th and 19th day of their arrival.    

Written by the Latin Department, CW CPA

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China

Greater China Updates – April 2021

Updates for this month: 

  • China – the world’s largest FDI recipient in 2020
  • The future of FDI in the Greater Bay Area
  • China rolling out new measures to boost the economy in Hainan
  • Implementation of income tax incentives for micro and small enterprises and individually-owned businesses
  • New pilot policies could improve the Transfer Pricing situation in China
  • Mexico and Hong Kong SAR sign Investment Promotion and Protection Agreement (IPPA)
  • A new agreement between China and Spain: the elimination of double taxation concerning taxes on income and the prevention of tax evasion and avoidance

China – the world’s largest FDI recipient in 2020

According to United Nations, the overall global flows decreased by 42% due to the pandemic, the most severe fall in the last three decades, even more than the 2008 crisis. The majority of the developed countries suffered the worst part, with some exceptions in Asia, and especially China, which has been able to recover fast and transmit confidence to the market.

China became the world’s largest FDI recipient in 2020, and its flows grew by 4% to $ 163 billion. The primary industries that made the most of this recovery are high tech, cross-border mergers and acquisitions, information, communication technology, and pharmaceuticals. In 2021, investors will remain cautious in pouring capital into markets such as the US and Europe, 46% and two-thirds respectively, waiting for their response of how to deal with the pandemic. The competition among developed countries for attracting FDI will be fierce during this year.

 

The future of FDI in the Greater Bay Area

Despite the pandemic, the cities in the GBA, especially Guangzhou, Shenzhen, and Hong Kong, keep attracting foreign investment. As a good sign of business confidence and investment environment, one of the first Fortune 500 companies in Guangzhou, P&G, has announced the creation of an intelligent technology innovation center this year. After three decades, China became P&G’s second-biggest market after the US.

The Fortune 500 SinTel Group has launched an innovation center in Shenzhen. Siemens also created an advanced energy center to prove the good relationship between China and Europe in a strategic, green, and digital partnership. New World Development, one of the largest real estate companies in Hong Kong, also announced the location of the headquarters in Guangzhou. AstraZeneca, a multinational pharmaceutical company, will establish its South China headquarters in Guangzhou city.

Different government institutions inform that the cities will keep making efforts to create a healthy business environment and attract more FDI.

 

China rolling out new measures to boost the economy in Hainan 

China issued guidelines with new measures fitting Hainan free trade port policy and institutional framework to support higher-level reform and opening in Hainan Province. The policy helps overseas investors participate in asset management products in the free trade port, such as wealth, equity management products, and security funds.  Individuals and enterprises will be supported to conduct investments in asset management products and raise capital through IPO.

Moreover, innovative development of homemade high-end medical equipment and the beauty industry will receive support from the central government. The guideline also mentions that China would ease entry restrictions to some sectors such as civil aviation, sports, and seeds markets in Hainan.

 

Implementation of income tax incentives for micro and small enterprises and individually-owned businesses

On 2 April 2021, China’s Ministry of Finance and State Administration of Taxation jointly announced the implementation of income tax incentives to support the development of micro and small enterprises and individually-owned businesses:

  1. For the portion of a small meagre-profit enterprise’s annual taxable income which does not exceed RMB 1 million, the enterprise is entitled to the reduction of corporate income tax at a tax rate of 20% on 12.5% of its taxable income.
  2. For the portion of annual taxable income amount of individually-owned businesses which does not exceed RMB1 million, individual income tax shall be reduced by 50% on the basis of the prevailing incentives.

 

New pilot policies could improve the Transfer Pricing situation in China

China’s strict control on foreign currency exchange has always been a burden for foreign companies and the domestic operations of their affiliate companies. Some local State Administration of Foreign Exchange, such as the one in Shanghai, have released some clarifications on pilot policies that show signs of alignment with the procedures of the local banks regarding the foreign exchange on transactions under the Transfer Pricing principle. Although there are still points to clarify the actual process and practice, the changes are seen as a positive sign for the foreign multinational companies with affiliates in China.

 

Mexico and Hong Kong SAR sign Investment Promotion and Protection Agreement (IPPA)

In March 2021, the Senate of the Republic of Mexico ratified the Investment Promotion and Protection Agreement (IPPA) signed between the Hong Kong SAR of China and Mexico.

The agreement was proposed on 23 January in Davos, Switzerland. The purpose of this is to protect the various investments between both jurisdictions. Hong Kong considers foreign direct investment at the time of incorporation as a local company, so a foreign company has the same rights and obligations as a local company.

On the Mexican side, this agreement will protect foreign investment and promote Mexico as a more conducive destination for mainland Chinese investment through Hong Kong.

 

A new agreement between China and Spain: the elimination of double taxation concerning taxes on income and the prevention of tax evasion and avoidance

On 2 May 2021, the new agreement for eliminating double taxation between Spain and China will come into effect, which will replace the existing treaty signed in 1990.

Under the new agreement, both states will allow the tax credit method of eliminating double taxation containing a specific clause for income received by persons who are wholly or partly transparent for tax purposes.

In general, dividends and interest, and royalties may be taxed at a rate not exceeding 10% if the beneficial owner of the interest or dividends is a resident of the other state. However, the tax must be directly applied rather than through a levy-then-refund procedure, where the rates are lower than those stipulated in the domestic law of the state in which the income arises.

Something worth mentioning is that the agreement includes a provision to specify that nothing in the agreement may prejudice the right of each state to apply its domestic laws and measures concerning the prevention of tax avoidance, whether described as such, insofar as they do not give rise to taxation contrary to the agreement.

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China

Greater China Updates – March 2021

China Aiming to Innovate on the AI Industry 

The Chinese authorities of the Ministry of Industry and Information Technology (MIIT) have announced, at the end of February of 2021, 5 new development zones dedicated to the innovation of the AI industry. Previously, there were only three zones: Shanghai (Pudong New District), Shenzhen, and Jianan-Qingdao, with the new additions in Beijing, Tianjin (Binhai New District), Hangzhou, Guangzhou, and Chengdu, the number has increased to 8.  

Each zone will innovate on AI towards a specific purpose: 

  • Beijing: Manufacturing intelligent vehicles in the framework of the Winter Olympics
  • Tianjin: Coordinate the development of the Beijing-Tianjing-Hebei area through the Pilot Free Trade Zone
  • Hangzhou: Focused on the development of the Hangzhou smart city and modern services
  • Guangzhou: Developing the supply change to integrate Great Bay Area (Guangdong-Hong Kong-Macao)
  • Chengdu: Connection to the Belt and Road Initiative focusing on the medical and financial sectors 

 

China Transfer Pricing: Latest Guidelines on Cross-border Payments 

The State Administration of Foreign Exchange (SAFE) has issued a new set of guidelines to settle the payment in foreign currencies and receipts for Transfer Pricing (TP) adjustments. China keeps strict rules on foreign exchange controls, making it difficult for MNCs to settle TP payments. The newly released guidelines are an attempt of the Chinese authorities to ease these processes.   

Generally, cross-border payments are categorized as payments in current accounts or capital accounts. However, there are certain cities running pilot programs for TP. The guidelines aim to align SAFEs and banks’ procedures as well as those in the pilot zones. The new guidelines deliver three proposals: 

  • TP adjustments: It will be necessary to present relevant information and supporting documentation such as invoices, profit adjustments, Additionally, these transactions will be processed as the original trade category, either products or services, allowing banks to treat them as transactions and letting them process the bank remittances for TP adjustments.  
  • Cost-sharing adjustments: As with the TP Adjustments supporting documents and information will be required. However, SAFEs must deliver a report on the sub-category. 
  • Others: Circular 14 will govern these schemes. However, there are not more details about it now.

 

Pilot Cash-Pooling Service for Multinational Companies Launched in Shenzhen and Beijing 

China’s monetary authorities have decided to launch the first batch of pilot projects in Shenzhen and Beijing to facilitate further the use of cross-border funds by multinational enterprise groups. The pilot projects will allow large multinational companies with relatively high credit ratings to purchase foreign exchange at will within a certain limit. The purchased funds can be deposited in the domestic primary account for cross-border payment.  

 

Visa Facilitation for Applicants Inoculated with Chinese COVID-19 Vaccines 

China is easing entry restrictions for foreigners inoculated with Chinese COVID-19 vaccines. During the week of 15 March 2021, Chinese embassies in multiple countries have introduced the conditions in which a visa application shall be supported if the visa applicant has received their Chinese COVID-19 vaccination and a vaccine certificate. Travelers who wish to enter China should first contact their respective Chinese embassy to obtain the latest visa application instructions. 

 

What other items be registered as a trademark in China? 

In China, not only company names, logos, words or drawings can be registered as trademarks, colors, smells, and even sounds can be registered trademarks too, as long as they are distinguishable. Yet, the distinctiveness of colors, smells, and sounds can be highly subjective. Therefore, the process and requirements of registering colors, smells, and sounds as trademarks are not so clear. Nevertheless, with the raising awareness of intellectual protection in China and the power of social media, we shall see more and more registration applications for these new concepts in the future.  

 

Tips for maintaining your Hong Kong corporate bank account active 

Opening a corporate account in Hong Kong in recent years is not so easy or quick. The banks follow a strict policy to guarantee that no illicit businesses are being conducted even after the bank account is opened. If they detect any account irregularities, the bank may reject the account opening application or close the existing account. Here are four tips to avoid bank account suspension: 

  • Maintain minimum account balance required by the bank
  • Respond to your bank regarding the annual assessment of your account 
  • Keep your company information up-to-date
  • Avoid leaving your account stagnant for a long period
Newsletter

Greater China Updates – February 2021

  • EU-China Comprehensive Agreement on Investment (CAI)
  • Simplification of Business name registration procedures in China
  • China to boost VAT e-invoicing and reinforce tax compliance
  • New announcement by the Ministry of Finance and the State Taxation Administration on the Pre-tax Deduction of Marketing Expenses
  • The importance of details on Employment Contracts
  • A decade-long battle of Intellectual Property conflict

EU-China Comprehensive Agreement on Investment (CAI)

A draft of the EU-China Comprehensive Agreement on Investment (CAI) published on 22 January 2021, showed a promising advance in the long-standing negotiations between all the parties involved.

After 35 rounds of negotiations since 2013, CAI becomes the first comprehensive investment protection agreement concluded by China, covering investment liberalization, investment protection, fair and competitive conditions, dispute settlement, and sustainable development.

Key elements of the EU-China CAI:

  • Making the conditions of market access for EU companies clear and independent of China’s internal policies.
  • Opening new market access in China for EU companies through the elimination of quantitative restrictions, equity caps, or joint venture requirements in various sectors.
  • Improving the level playing field by seeking to discipline the behavior of state-owned enterprises to act in accordance with commercial considerations.
  • Imposing transparency obligations on subsidies in the services sectors.
  • Laying the rules against forced technology transfers.
  • Providing transparency rules for regulatory and administrative measures to enhance legal certainty and predictability, as well as for procedural fairness and the right to judicial review.
  • In labor and environmental areas, China commits not to use the standards of protection for investment attraction or protectionist purposes.
  • Commitments on environment and climate, including to effectively implement the Paris Agreement on climate.

 

Simplification of business name registration procedures in China

With effect from March 2021, the revised regulation on business name registration will further simplify registration procedures of starting businesses. The ‘business name pre-approval’ stage will be abolished. Hence, this change will allow applications to be lodged through the online business name application system.

Applicants now have the option to inquire, compare and screen proposed business names via the online business name declaration system or directly submit their application to the registration authority. The new regulation and digitalized system grant more flexibility and transparency to its applicants.

However, applicants must ensure their selected business name meets the requirements of these Provisions. All information and materials submitted must be authentic, accurate, and complete. The applicant shall bear legal liability for infringement of others’ legitimate rights and interests. 

 

China to boost VAT e-invoicing and reinforce tax compliance

China has very quickly and efficiently adopted the electronic VAT system. The disruption of COVID-19 has encouraged companies to rapidly integrate their IT resources (ERP, CRM, etc.)  with those of tax authorities.

China has advanced its e-invoicing system and technological integration in its fiscal compliance and processes, introducing the feature of issuing ‘Special’ VAT e-invoices on top of its former restriction to ‘General” VAT invoice.

This modern technology adoption promises multiple benefits for companies and tax authorities. Taxpayers of all levels – micro, small, medium, and big enterprises – will reap the benefits of reduced paper-waste and increased efficiency in terms of time and cost. Subsequently, Tax authorities are able to assess real-time information which could strengthen compliance checks.

 

New announcement by the Ministry of Finance and the State Taxation Administration on the Pre-tax Deduction of Marketing Expenses

The Ministry of Finance and the State Administration announced on 27 November 2020 that the pre-tax deduction is effective from January 2021 till December 2025. This will benefit businesses that incur marketing expenses (advertising and business promotion expenses).

However, the measure will only apply to companies involved in the cosmetics industry (manufacturing or selling goods) and manufacture of beverages and drugs (excluding alcohol).

The businesses benefiting from this policy will be able to deduct up to 30% of their sales revenue in the current year, where expenses were incurred. The excess may be carried forward during the next years.

It is worth noting that tobacco marketing expenses, such as advertising and promotion, are not deductible in calculating taxable income.

 

The importance of details on Employment Contracts

2020 has revealed many instances in which both employers and employees neglected the importance of labor matters. When all is well, enforcing strict contractual terms seems to be unnecessary.

However, the unique environment arose in numerous conflicts between contractual parties. This revealed the gravity of remaining vigilant to employment contract details. It is imperative to remain attentive to multiple items, including national laws and local policies and rules, termination conditions, duration of the contract (fixed-term, open-ended, specific), clear and concise use of language, and oral agreements. Compulsory contract provisions such as salary, bonus, benefits, working hours, the term of service, probationary period, social insurance program, overtime rate, conflict resolution methods, and other elements also play important roles. Due to its complexity and location variations, whether the company is hiring, dismissing, or relocating employees, it is highly advised that contracts are drafted and reviewed by specialized lawyers.

 

A decade-long battle of intellectual property conflict

After a decade and over 80 lawsuits, Basketball legend, Michael Jordan won a trial over the Chinese company, Qiao Dan, who has been making use of his name and similar logo for around 20 years.

The Supreme People’s court, equivalent to the U.S. Supreme Court in China, has decided that the company must publicly apologize on mass media and formally announce that they have no ties to the athlete. Despite the inadequate mental damage compensation, China has shown an effort to avoid intellectual property disputes and make it a safer investment destination for foreign brands.

Any trademark dispute can be time-consuming and involve high costs for both parties. Therefore, it is highly recommended to do research on trademark and Intellectual Property Rights and protection to minimize risks.

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China business

Greater China Updates – January 2021

  • Update on the 2020 Market Access Negative List 
  • Shanghai Local authorities have introduced some measures to promote the incorporation of foreign companies.  
  • Hainan: Free Trade Port officially launched 
  • Deadlines for Filing Tax Returns in 2021 defined 
  • Compliance tips on employee termination and trademark issues in China 

Update on the 2020 Market Access Negative List 

On 16 December 2020, the National Development and Reform Commission reduced the list from 123 items to 31 compared with the 2019 list. The main industries that will benefit from this update include oil and gas, management of resources, and services on trading and finance. The update allowboth local and foreign firms to enter to some extent to previously prohibited or restricted sectors. It is important to mention that foreign investors still need to review the Foreign Investment Negative List to clarify in which industries they are allowed to conduct business in China 

For more information or more details on the Market Access Negative List from 2020, please visit the following link: 

https://www.ndrc.gov.cn/xxgk/zcfb/ghxwj/202012/t20201216_1252897_ext.html 

 

Shanghai Local authorities have introduced some measures to promote the incorporation of foreign companies.  

Recent regulations introduced by Shanghai’s local government will help foreign companies cut time in the registration process. Due to the ongoing traveling restrictions, the Administration for Market Registration (AMR) of Shanghai has relaxed the authentication of some essential documents. In the past, most of the documents must be authenticated in the Chinese Embassies or Consulates correspondent to the documents’ country of origin. However, to ease the process for the different kinds of investors or representatives, the authorities are giving a waiver to provide the corresponding authentication documents once available. Additionally, a letter of commitment must be submitted by the parties interested in the incorporation and the notarized correspondent documents to obtain a business license. Further, some banks, such as the Bank of Shanghai (BOS), allow video calls with the Legal Representative to open the Capital Account and the Basic RMB account for the Foreign Invested Enterprise, without his/her physical presence. 

These policies might change as the current situation evolves and may vary from district to district. To be up to date with the changes, please contact us at shanghai@cwhkcpa.com. 

 

Hainan: Free Trade Port officially launched.  

Following a pilot program, Hainan island has been granted the Free Trade Port (FTP) status after China drafted a law formalizing it.   

This event is aligned with a greater plan to take the province into a more influential FTP worldwide.   

At this first stage, specific imported commodities will be exempt from tariffs. At the second stage which will be after 2025, all commodities not included on a restriction list will be tariff-free.   

The Law echoes promising corporate tax along with individual income tax policies in Hainan. Corporations established in Hainan within encouraged industries will be taxed at a lowered corporate tax rate from the standard tax rate of 25% to a more favorable 15% tax rate. Important to stress that after 2025, this policy will be extended to all industries. Additionally, some commodities might be exempted from import duty, import value-added tax (VAT), and consumption tax. 

 

Deadlines for Filing Tax Returns in 2021 defined  

The State Taxation Administration (STA) has released the specific deadlines for filing tax returns in 2021. 

According to the tax law in place, taxpayers must file their returns within 15 days after the end of a month or a quarter. However, these deadlines need to be adjusted due to statutory public holidays in certain months. Thus, deadlines in some months will be granted an extension depending on the number of public holidays. 

* Note: 

Provincial tax bureaus might adjust their deadlines. Taxpayers are advised to be aware of any changes. 

 

Compliance Tips  

On Employee Termination During Pandemic  

Due to the current situation resulting from the pandemic, and with this Chinese New Year in 2021, clients often inquire about Employment and Labor matters, especially regarding dismissal. The employer may not terminate the contract if the employee is pregnant, is under a period of medical treatment for an illness, has been injured at work, is being diagnosed, is under medical observation, or has been working continuously for 15 years. However, the employer is entitled to dismiss him/her under the following conditions: 

  • The employee is proven to be unqualified. 
  • The employee has seriously violated rules and regulations. 
  • The employee has caused significant losses to the employer due to malpractices for personal gain,  
  • The employee has established a labor relation with another employer. 
  • The employee is being investigated for criminal responsibility. 
  • The employee is incompetent after receiving training. 
  • The company has to reduce personnel due to introduction of major technological updates and adjustment of business method. 

 

On Trademark Registration  

If you plan to sell your products in China, have you checked whether your trademark has been registered by others already? If not, you may be facing the possibility of not being able to sell your products with the trademark. Your products may not be allowed to enter China, or you may be sued by the individual/company that owns the trademark.  

Invalidating a trademark registration can be extremely difficult due to the complexity of providing evidence of bad faithEven though you may argue that you use the trademark first, the chance of recovering the trademark is low, since China uses the first-to-file system. 

There are several alternatives, such as buying the trademark from the competitor, collaborating with the competitor as a business partner, or rebranding the trademark to sell your products under a new trademark. All these options involve paying a high price or giving away your established business value. 

Therefore, before selling your products to China and revealing your brand, you must first get your trademark registered in China. There is no shortcut.  

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