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 community. In 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