China Business News

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Transition from Business Tax to VAT system in China: New VAT policies for finance leasing services

As part of the transition from the Business Tax to the VAT system in China, the State Administration of Taxation (SAT) has released:

  1. Announcement [2015] No. 90 “Announcement on relevant VAT issues in relation to the transition of business tax to VAT”, and
  2. Caishui [2015] No. 144 (“Circular 144”) on Stamp Duty policies.

Key objective:

R&D super reduction zone – to be implemented on the 1st January 2016

Circular 119 was released on the 21st October. It significantly changes R&D deduction regulation by focusing on pre-additional deductions of R7D expenses. Most local and foreign firms will be positively impacted, expect for those that belong to industrial sectors or that practice activities falling in the scope of the negative list. Foreign firms and multinationals may now wonder on which basis a project will be deemed to meet R&D super deduction requirements.

Pilot QDLP Program in Qingdao – RMB funds invest in overseas markets

The new pilot QDLP Program of Qingdao implemented on February 9, 2015 by local authorities is a significant breakthrough for the Chinese fund industry. Indeed, it enhances financial reforms in the area by promoting wealth management investments. Foreign investors can now establish an investment entity in Qingdao and set up RMB fund firms in order to invest in overseas listed securities and M&A overseas-unlisted securities and commodities markets.

New International Standards for Automatic Exchange of Financial Information

In a joint effort against tax evasion, the Hong Kong government and the Organization for Economic Development and Cooperation (OECD) implemented Common Reporting Standards (CRS) for Foreign Invested Firms (FIEs) in the scope of aligning Hong Kong with the global standards for Automatic Exchange of Financial Information (AEOI). Legislative proposals for implementing those new standards were expressed by the Hong Kong authorities after a public consultation process of FIEs between April and June 2015.

Registered capital and annual inspections no longer required for foreign invested firms

Following the 2014 State Council plan reforming capital registration systems, the Ministry of Commerce (MOFCOM) issued new rules in October 2015. For capital requirements, a “subscribed capital” system will be implemented instead of a “paid in” system. For annual inspections, the procedure will be followed online which abolished the necessity for physical check on an annual basis. Foreign firms and multinationals must therefore assess the key impacts of these new regulations, which will mainly be positive. 

China's 13th Five Year Plan: Development Agenda

Social and economic plans embodied by the new FYP were implemented in China in 1953 and based on the Soviet Union model. They are drafted and implemented nationally and regionally. Today, people wonder whether those plans don’t have an expiry date, just like the Soviet Union’s ones.

China’s Foreign Investment Law towards stability and long-term sustainability

In the next 18 months, the Chinese Foreign Investment Law should be reshaped around three main aspects to further liberalize the Chinese market accordingly to international standards.

Positive prospects for the Chinese economy with the One Belt One Road benefitting the world

With the ongoing acceleration of reforms in China exemplifying the structural transition of the economy, one may wonder what will be the global implications of the One Belt One Road strategy.

New tax agreement between Mainland China and Taiwan to boost trade and investment

Following long negotiations, the agreement was signed on the 25th April, 2015 with a multitude of provisions differing from the previous treaties and based on the Organization for Economic Cooperation and Development (OECD) and United Nations (UN) models. Provided that Mainland China is the most important trade partner of Taiwan and given the number of Taiwanese that work, study and live in Mainland China, the agreement will significantly impact investment and trading behaviors of Taiwanese firms.

A Comprehensive EU-China Agreement on Investment for SMEs

European companies are reconsidering their strategies in response to the Chinese slowdown. Despite of all the challenges and difficulties that private entities are facing, the Chinese market remains a priority for most European entities.

Major concerns

Ongoing reforms in China aim to make the market more attractive for foreign invested firms by loosening administrative barriers for a clearer business environment and deepening healthcare and budgetary reforms.

Chinese Yuan devaluation: global threat or adjustment?

Shanghai’s stock exchange is now at a lower level than it was on the 31st December 2014, meaning all of 2014’s gains collapsed since the Yuan lost more than 7% against the US$ in the last 2 weeks. Since many other stock exchanges followed the trend throughout the world, the estimated worth global loss arises 5,000 billion US$.

Experts are wondering whether this is a wakeup call for the Chinese economic system or if it is natural outcome from a system based on artificial growth being readjusted.

Attracting foreign talents by loosening visa requirements

Chinese authorities under the Ministry of Public Security have decided to loosen visa procedure for foreigners in July 2015 in order to attract talents and encourage residents of Hong Kong, Macao and Taiwan to settle businesses in China. This is the outcome of a long term trend since 2013 aimed at boosting employment in China. Shanghai will first implement those measures on a trial basis and other parts of China will follow gradually. Potential costs and organizational changes may arise for firms settled in China.

Key measures:

Focus on China – Australia Free Trade Agreement (ChAFTA)

The deal was signed on the 17th June 2015 between Australia and China. It is a huge opportunity for Australia as it promotes liberalization more than ever. Not only does it grants market access for Australian wine and beef exporters but also does it encourages Chinese carmakers and electronic producers willing to enter the Australian market.

As of 2014:

Circular 146- A new Corporate Income Tax (CIT) treatment for some overseas related payments

On the 18th March 2015, Circular 146 provided new CIT regulation for overseas parties. It gives further leeway and insight to local tax authorities on both royalties and oversea fees for foreign actors involved. Indeed, the latter charges need to be relevantly justified and foreign firms must perceive them only if their activity in China has some legitimate economic substance and fulfill what the intercompany agreement stipulated. This a step further in the Chinese anti-tax avoidance policy.

Long-awaited china international payment system (CIPS) turns out to be for trade deals only

Today, one third of Chinese trade is denominated in RMB, which is  ranked 7th global currency worldwide. The outstanding growth of trade settled in RMB is embodied by 14 RMB hubs settled worldwide. Therefore, with the CIPS not covering transactions anymore, very little value is added to the existing system. The CIPS was supposed to ease China’s RMB transactions by enabling them to be done faster and at a cheaper rate. It is now downgraded to trade deals which questions Shanghai’s role as an international RMB hub.

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