OUR INSIGHTS

• Nationwide Social Security Premium Reduction and Policy Trend


TAX

• Interim Administrative Measures for Real Estate VAT


CORPORATE ADVISORY

• Administrative Measures for Private Equity Investment Fundraising

• Agreement on Avoidance of Double Taxation between China and Indonesia


HUMAN RESOURCES

• Interim Residence Permit Regulations for Non-native Citizens



 

 OUR INSIGHTS

Nationwide Social Security Premium Reduction and Policy Trend

China’s Ministry of Human Resources and Social Security and Ministry of Finance jointly issued a notice recently on cutting social security premiums to reduce the burden on enterprises.


According to the notice, the employer’s contribution rate to the pension fund has been cut to 19–20% depending on conditions this year. In situations where the employer’s contribution to the pension fund is over 20% of the payroll, the rate has been lowered to 20%. In situations where the employer’s contribution is already 20%, the rate may be lowered to 19% in the next two years.

 

The required unemployment insurance payment rate, which was cut from 3% to 2% of the payroll last year, has been further reduced to 1–1.5%, with the individual’s contribution capped at 0.5%.

 

The average insurance contributions for work injuries and childbirth remain unchanged following respective cuts of 0.25 and 0.5 percentage point last year. However, the two categories may be combined in the future pending regulatory updates by the State Council, the notice said.

 

Different provinces, autonomous regions and municipalities are required to roll out specific plans accordingly. In response to the central government’s earlier call to reduce the burden on businesses, 12 provinces and municipalities have cut social security payment rates for employers and employees since end-March.

 

As an illustration, the new rates for Shanghai’s social insurance scheme, after adjustment, have been in effect since January 2016 and are shown below:

Old Rates Before Adjustment New Rates After Adjustment
Company Individual  Company Individual 
Pension 21% 8%  20%  8%
Medical 11% 2%  10%  2%
Unemployment 1.5% 0.5%  1%  0.5%
Work Injury   0.5%  0  0.2–1.9%  0
Maternity   1%  0  1%  0

This may not be the final scheme for Shanghai; there is still room for further rate reductions in the future. Looking at the national policy trend, several factors might result in further adjustments to social security payment rates:

  • The government is considering the extension of pension benefits in Shanghai to the rest of the country. If this plan is implemented, pension benefits would be similar across difference provinces in China. This means many Shanghai residents who originally came to the city from other provinces might return to their home town instead to seek new employment and enjoy comparable pension benefits after retirement. Consequently, this would reduce the pension burden on employers in Shanghai.
  • The government has proposed the combination of maternity insurance and medical insurance, which, if implemented, may lower the social insurance contributions by employers.
  • As the economy grows, the government may lower social insurance contribution rates further, reducing the financial burden on enterprises in this area.

 TAX

Interim Administrative Measures for Real Estate VAT

On 31 March 2016, the State Administration of Taxation announced interim administrative measures for the collection of real estate value added tax (VAT) from taxpayers. These measures have been in effect since 1 May 2016 and are described in the table below.

 

Taxpayer Type of Real Estate Tax Payable Tax Declaration 
General VAT payer
Real estate acquired on or before 30 April 2016 (not built by the taxpayers themselves) — may choose to apply the simplified calculation method
Provisional tax payable = (Total consideration + relevant extra charges - the purchase price or original value of real estate acquired) ÷ (100% + 5%) x 5%
Tax filing on a net basis at the collection rate of 5%. The tax paid based on provisional tax filing shall be deductible for formal filing.
Real estate acquired on or before 30 April 2016 (built by the taxpayers themselves) — may choose to apply the simplified calculation method
Provisional tax payable = (Total consideration + relevant extra charges) ÷ (100% + 5%) x 5%
Tax filing on the gross amount at the collection rate of 5%. The tax paid based on provisional tax filing shall be deductible for formal filing.
Real estate acquired on or before 30 April 2016 (not built by the taxpayers themselves) — may choose to apply the general calculation method
Provisional tax payable = (Total consideration + relevant extra charges - the purchase price or original value of real estate acquired) ÷ (100% + 5%) x 5%
Tax filing on the gross amount at VAT rate of 5%. The tax paid based on provisional tax filing shall be deductible for formal filing.
 
Real estate acquired on or after 1 May 2016 (not built by the taxpayers themselves) — shall apply the general calculation method
Real estate acquired on or before 30 April 2016 (built by the taxpayers themselves) — may choose to apply the general calculation method Provisional tax payable = (Total consideration + relevant extra charges) ÷ (100% + 5%) x 5%
Real estate acquired on or after 1 May 2016 (built by the taxpayers themselves) — shall apply the general calculation method
Small-scale taxpayers
 
Real estate (other than residential buildings purchased by individuals) not built by the taxpayers themselves
Provisional tax payable = (Total consideration + relevant extra charges - the purchase price or original value of real estate acquired) ÷ (100% + 5%) x 5%
Tax filing on a net basis at the collection rate of 5%. The tax paid based on provisional tax filing shall be deductible for formal filing.
Real estate (other than residential buildings purchased by individuals) built by the taxpayers themselves
Provisional tax payable = (Total consideration + relevant extra charges) ÷ (100% + 5%) x 5%
Tax filing on the gross amount at the collection rate of 5%. The tax paid based on provisional tax filing shall be deductible for formal filing.
Individuals (including self-employed industrial and commercial households without general VAT taxpayers status)
 
Transfer of second-hand residential properties subject to VAT on the gross amount
Provisional tax payable = (Total consideration + relevant extra charges) ÷ (100% + 5%) x 5%
(Individuals other than self-employed industrial and commercial households are only required to file VAT with the supervising local tax bureau where the real estate is located according to the formula above; no further filing with the supervising national tax bureau is required.)
Tax filing on the gross amount at the collection rate of 5%. The tax paid based on provisional tax filing shall be deductible for formal filing (applicable to self-employed industrial and commercial households only).
Transfer of second-hand residential properties subject to VAT on a net basis
 Provisional tax payable = (Total consideration + relevant extra charges - the purchase price) ÷ (100% + 5%) x 5%
(Individuals other than self-employed industrial and commercial households are only required to file VAT with the supervising local tax bureau where the real estate is located according to the formula above; no further filing with the supervising national tax bureau is required.)
Tax filing on a net basis at the collection rate of 5%. The tax paid based on provisional tax filing shall be deductible for formal filing (applicable to self-employed industrial and commercial households only).


The announcement above clarifies the implementation of real estate VAT in China. Taxpayers should be aware of the VAT treatment and adopt the correct method.

 

 CORPORATE ADVISORY

Administrative Measures for Private Equity Investment Fundraising

Asset Management Association of China announced administrative measures for private equity investment fundraising (the “Measures”), which will take effect from 15 July 2016.


The Measures stipulate a comprehensive set of industry standards and commercial rules in relation to the fundraising parties, fundraising procedures, account supervision, information disclosure, determination of qualified investors, risk disclosure, cooling-down period, confirmation on return visits, and legal liability of the fundraising institutions and their employees involved in the process of private fundraising.

 

We are of the view that these Measures will promote the healthy development of the PRC private equity funds industry.

Agreement on Avoidance of Double Taxation between China and Indonesia

The State Administration of Taxation recently announced an Agreement on the Avoidance of Double Taxation between the People’s Republic of China and the Republic of Indonesia (the “Agreement”).


The Agreement has been in effect since 16 March 2016 and applies to income obtained on and after 1 January 2017. It is expected to help in the reduction of tax burdens on enterprises and facilitate economic and trade cooperation between China and Indonesia.

 

 HUMAN RESOURCES

Interim Residence Permit Regulations for Non-native Citizens

At the end of 2015, the State Council issued interim regulations governing residence permits for non-native citizens in Shanghai, which have been in effect since 1 January 2016. Many areas in China, such as Hebei, Jilin, Tianjin, and Jiangxi, also implemented these regulations in April this year. According to recent proposals by the government, these will also apply to the rest of the country in the future.


Non-native citizens in Shanghai are citizens from other provinces who come to the city to work and do not have a permanent resident address there. In general, non-native citizens holding a residence permit in locations under the interim residence permit regulations will enjoy the same benefits as native citizens in the following areas:

  • Compulsory education;
  • Basic public employment services;
  • Basic public health and family planning services;
  • Public cultural and sports services;
  • Legal aid and other legal services;
  • Application for a driver’s licence;
  • Processing formalities of entry and exit clearance in accordance with rules and regulations of the People’s Republic of China;
  • Processing formalities of replacement or issuance of new ID cards in accordance with national rules and regulations; and
  • Other basic public services as prescribed by the Chinese government

The regulatory requirements that applicants must meet to acquire the “Hukou” (permanent residence) status vary from city to city depending on the local population size. These requirements cover areas such as social benefit contribution, age, educational background, employment status, and technical qualifications.

 

 ABOUT US


SBA Stone Forest (SBASF) is a corporate advisory and public accounting group that focuses on serving foreign enterprises in China since 2001. Headquartered in Shanghai with offices in Beijing, Suzhou, Shenzhen, Chengdu and Hangzhou, we help help foreign investors set up in China smoothly, and thereafter support them in navigating China’s regulatory and business environment.

Our parent company — Stone Forest — is the largest accounting and business advisory group outside the Big 4 in Singapore, with a 30-year history. Discerning international businesses appreciate the advantages of our Singapore heritage, as it epitomises excellence, integrity and trust.  We adopt the same systems, international standards, best practices and culture of our Singapore parent. You will work with a dynamic team with the Singapore hallmarks of quality service and delivery.

Together with our partner-owned public accounting practice, we offer quality, one-stop and seamless solutions to our clients.  Working with us means you get the best of intimate local knowledge and technical know-how, delivered in the efficient and client-driven culture of international businesses. Our services include business assurance, accounting & advisory, payroll & HR advisory, tax compliance and advisory, risk management, corporate advisory and eDiscovery.


 CONTACT US


Website: www.SBASF.com

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Tan Lee Lee (Ms), Director
T +86 21 6186 7602
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Yeo Lee Soon (Mr), Director
T +86 10 8591 1900
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Rita Boyle, Director
T +86 21 6186 7692
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