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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