China Briefing 2016 Highlights Key Regulatory Updates and Effective Risk Management Approach
Businesses that stay on top of China’s economic reforms and have an effective approach to risk management would be in a much better position to seize business opportunities in the world’s second largest economy. This was the main takeaway for attendees at our China Briefing 2016 seminar on 15 September 2016.
Frequent Regulatory Updates
Businesses should always be ready for frequent regulatory updates in China, said Tan Lee Lee, Director of Business Advisory. In October 2013, the Chinese government started reforms of commercial laws and regulations, such as cancellation of the minimum requirement for registered capital and annual inspections of enterprises.
In May 2016, it announced that a new ‘5-in-1 business licence’ would replace the ‘3-in-1 business licence’ with effect from 1 October 2016. The previous ‘3-in-1 business licence’ integrates the organisation code and tax registration certificates. In addition to these, the new ‘5-in-1 business licence’ acts as the social insurance registration licence and statistics code registration certificate.
“Apart from reducing incorporation costs and shortening incorporation time, the government’s regulatory reforms also benefit enterprises by providing access to a nationwide database for statistics and more transparent and accurate information to mitigate trade risks,” Lee Lee said.
She added that besides staying on top of regulatory changes, businesses that expand into China should be clear on their entity’s purpose, short and medium term goals, as well as the business scope and model. They should also have robust internal controls and invest in the right resources to be successful.
Other important areas that she discussed included incorporation procedures involving special licences, how businesses may take advantage of benefits from China’s free trade zones, as well as labour and tax regulatory updates. In particular, a key development is the replacement of the business tax with the new value added tax regime in all sectors since 1 May 2016.
A corporate advisory and public accounting partner can help foreign enterprises to set up in China and support them in managing their compliance and other business needs, Lee Lee said.
Managing Risk in China
Businesses face several challenges when managing risk in their China operations, including a lack of trust between local and foreign partners, regulatory differences between countries, and culture gaps.
“While such challenges are not unique to China, they underscore the need for better and more effective supervision of overseas operations,” said Sovann Giang, Senior Director of Risk Advisory at RSM. “The headquarters should play an active role in supporting, controlling, supervising and monitoring the overseas subsidiary in China.”
Senior executives who lack risk awareness can greatly reduce the effectiveness of risk management, especially when they do not believe in the risk management process and think it is too “compliance-focused”.
“Businesses should not focus only on implementing the so-called ‘best framework’ and tools,” Sovann said. “The ‘best framework’ and tools would not be effective if there is a lack of independence and no clarity of roles and responsibilities in the risk management organisation structure. Ownership and responsibilities to track, control and mitigate risk must also be clear.”
The event was held in Singapore with the theme ‘Economic Reforms in China — Seizing Business Opportunities and Managing Risk’.
Provisions on Collection of VAT in Lieu of Business Tax
On 18 August 2016, China’s State Administration of Taxation (SAT) announced provisions on the collection of value-added tax (VAT) in lieu of business tax (BT) that took effect from 1 September 2016 (Guoshuifa  No. 53). These include:
- Article 1 — Conditions for services or intangible assets of entities or individuals outside the territory of China to be deemed as “offshore”
- Article 2 — Individuals, whose lump sum rental proceeds may be equally apportioned to the related rental period and if the apportioned rental does not exceed RMB30,000, may enjoy the preferential VAT policy (tax exemption) under the small and micro businesses model.
- Article 3 — List of provisions that businesses selling single-purpose commercial prepaid cards (or “single-purpose cards”) should comply with
- Article 4 — List of provisions that businesses selling multipurpose commercial prepaid cards (or “multipurpose cards”) should comply with
- Article 5 — Provisions regarding purchase prices when entities transfer restricted shares after releasing the restricted shares
- Article 6 — For banks offering loan services and accruing interest calculated by instalments, all interest amounts accrued on the settlement day shall be calculated within the sales amount of the relevant interest settlement period and subject to VAT in accordance with the existing provisions.
- Article 7 — Taxpayers that incur VAT liabilities on a quarterly basis can pay VAT on their relevant taxable income quarterly.
- Article 8 — A taxpayer providing construction services in different cities or districts that prepays taxes to the local SAT office in the place where it provides such services shall fill in the Prepayment VAT Return and provide additional materials, including related forms, the master construction contract and subcontract, as well as related valid invoices.
- Article 9 — Taxpayers shall upgrade the software for issuing VAT tax-control invoices to the latest version
All outstanding tax issues shall be handled in accordance with the provisions above. However, any outstanding tax issues before 1 May 2016 relating to Articles 2, 5 or 6 shall be subject to BT instead of VAT.
Clarification of Regulatory Change to Foreign-invested Enterprises’ Registration Process
The State Administration for Industry and Commerce (SAIC) has issued a circular to clarify a regulatory change to the registration process of foreign-invested enterprises (the “Circular”), which has been in effect since 8 October 2016.
According to the Circular, a foreign investor that invests in industries other than those listed on the Negative List may apply to SAIC for the establishment, change in details or de-registration of the foreign-invested enterprise without submitting the approval certificate any longer.
However, foreign investors that wish to establish, change the details of or de-register foreign-invested enterprises in industries listed on the Negative List are still required to submit the approval certificate.
China Issues Catalogue of Services to be Imported
The Ministry of Commerce, National Development and Reform Commission and Ministry of Finance jointly issued a Catalogue of Services to be Imported (the “Catalogue”) on 25 August 2016.
China’s government encourages the import of these services as they are urgently needed in the country, but domestic service providers are unable to provide them.
The Catalogue covers three categories of services, namely, research & development (R&D) and design, energy conservation & environmental protection, and environmental services. Specific services are listed under each category, such as intellectual property services, virtual reality technology services, remanufacturing technology services, and soil treatment services.
The Catalogue also provides detailed descriptions for each service. For example, intellectual property services include agency, legal, research, operation, consulting and training services with respect to patents, trademarks or copyrights.
Benchmark Study of Shenzhen Salaries in 2016
On 9 September 2016, the Shenzhen Municipal Human Resource and Social Security Bureau announced the results of a benchmark study of local salaries this year (the “study”).
Overall, the study revealed that salaries in Shenzhen have increased in 2016 compared with the previous year. Local salaries of workers in the 75th and 25th percentiles increased by 1.17% and 8.44% year-on-year respectively. The median salary grew by 7.17% year-on-year, while the average salary was up by 8.19% compared with 2015.
The study focused on the main positions in several industries such as manufacturing, construction and finance. While local salaries increased in most sectors, those in the top three high-value industries of finance, software & information technology and real estate remained the same as last year. Average salaries in these three industries were RMB43,954, RMB41,314 and RMB34,559 respectively. For the low-value industries of accommodation & catering, manufacturing, as well as lease & commercial services, the average salaries were RMB2,385, RMB2,419 and RMB2,549 respectively.
Guangzhou Reduces Medical Insurance Contribution Rates for One Year
The Guangzhou Municipal Human Resource and Social Security Bureau announced reductions in medical insurance contribution rates for employers and employees with effect from 1 October 2016 to 30 September 2017.
The medical insurance contribution rate of employers decreased from 8% to 7%, while that of freelancers, those who continue with such contributions after retirement, and the unemployed who choose to contribute to medical insurance fell from 10% to 9%.
According to the announcement, the employee medical insurance contribution base in Guangzhou ranges from 60% to 300% of the average monthly salary of year 2015, which is in accordance with the amount declared for assessing tax payable for 2015. For year 2016, the medical insurance contribution base for freelancers and those who continue with such contributions after retirement is RMB4,058.
SBA Stone Forest (SBASF) is a corporate advisory and public accounting group headquartered in Shanghai with offices in Beijing, Suzhou, Shenzhen, Chengdu and Hangzhou. We help foreign businesses set up in China and thereafter support them in navigating China’s regulatory and business environment, having carved a niche serving those from the Americas, Europe, as well as North and South East Asia since we started in 2001.
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 our Singapore heritage, as it epitomises excellence, integrity and trust. We share the same systems, high standards, international best practices and service culture of our Singapore parent.
Together with our partner-owned public accounting practice, we offer intimate local knowledge and one-stop, seamless solutions in business assurance, accounting & advisory, payroll & HR advisory, tax compliance and advisory, risk management, corporate advisory and eDiscovery.
We are also well-positioned to help Chinese enterprises internationalise, given our Singapore parentage in a top financial and business hub in Asia, and our memberships in the Allinial Global and World Services Group international networks.
Tan Lee Lee (Ms), Director
T +86 21 6186 7602
Yeo Lee Soon (Mr), Director
T +86 10 8591 1900
Rita Boyle, Director
T +86 21 6186 7692