TAX
• China reduces value-added tax rates for goods and imported goods
CORPORATE ADVISORY
• Revisions in record-filing formalities for incorporation of foreign-invested enterprises
• 2018 edition of Negative List reduces restrictions on foreign investors
HUMAN RESOURCES
• Employment and entrepreneurship services for Hong Kong, Macau, Taiwan passport holders in Chinese mainland
• Hong Kong, Macau, Taiwan passport holders no longer need work permits in Chinese mainland
TAX
China reduces value-added tax rates for goods and imported goods
China’s State Administration of Taxation released Caishui [2018] No. 32, or Circular 32, announcing changes to VAT policies that have been in effect since 1 May 2018.
Key changes in Circular 32 include the following:
1. Adjustments to VAT rates
The general VAT rate for the sale of goods or imported goods is reduced from 17% to 16%. In addition, the VAT rate for the sale of goods or imported goods with a lower tax rate is reduced from 11% to 10%.
2. Special treatment of input VAT credits for purchasing agricultural products
Since 1 May 2018, the input VAT credit rate for purchasing agricultural products has been reduced from 11% to 10%.
The purchase of agricultural products for processing and retail is now subject to a VAT rate of 16%, and the input VAT credit rate is 12%.
3. Adjustments to export tax rebate rates
Exported goods that were previously subject to a 17% tax rate and qualified for a 17% export tax rebate rate now enjoy a 16% export tax rebate rate. Exported goods and cross-border taxable activities previously subject to an 11% tax rate and qualified for an 11% export tax rebate rate now enjoy a 10% export tax rebate rate.
Where relevant exported goods and cross-border sale of services are taxed at the pre-adjusted VAT rates, the pre-adjusted export tax refund rates should be adopted for export tax refund purposes.
Where relevant exported goods and cross-border sale of services are taxed at the adjusted VAT rates according to Circular 32, the adjusted export tax refund rates should be adopted accordingly.
4. Small-scale VAT payers
The annual sales revenue threshold of small-scale VAT payers has been increased to RMB5 million since 1 May 2018.
Entities or individuals registered as general VAT payers may be converted to small-scale VAT payers by 31 December 2018 with their uncredited input VAT transferred out.
Should there be any conflict between the VAT, deduction and export tax refund rates in Circular 32 and those in past circulars, Circular 32 shall prevail.
Taxpayers should assess the impact of the adjustments to VAT rates on their income, expenses and bottom line, as well as consider whether their contract terms, pricing policies and IT systems consequently need to be revised.
CORPORATE ADVISORY
Revisions in record-filing formalities for incorporation of foreign-invested enterprises
The Ministry of Commerce (MOFCOM) announced revisions in record-filing formalities for the incorporation of foreign-invested enterprises (FIEs) that took effect on 30 June 2018.
The announcement stated that where a proposed FIE falls into the scope of enterprises subject to record-filing under Chinese regulations, the representative or agent appointed by all investors (or the board of directors of a foreign-invested joint stock company) shall submit information online for the purpose of filing a record for the incorporation of the proposed FIE. After receiving such information, the record-filing authority shall process the submission and inform investors at the same time.
2018 edition of Negative List reduces restrictions on foreign investors
China’s National Development and Reform Commission and Ministry of Commerce jointly issued Special Administrative Measures for Access of Foreign Investments (Negative List) (2018 Edition) — or the “Negative List” — which took effect from 28 July 2018.
The number of items subject to special administrative measures on the latest Negative List is reduced from 63 to 48, easing restrictions on market access to a large extent.
It also adds 22 new measures that seek to open up the market in certain industries, including the following:
• The limits on foreign shareholding in a special vehicle manufacturer or new-energy vehicle manufacturer have been lifted.
• The limits on foreign shareholding in all commercial vehicle manufacturers will be lifted in 2020.
• In 2022, limits on foreign shareholding will be abolished for passenger vehicles, and the restriction where a single foreign investor may establish up to two joint ventures in China to manufacture the same type of vehicle will be eliminated as well.
• The restrictions where shareholding in a Chinese-invested bank held by a single foreign investor or several foreign investors in aggregate shall not exceed 20% and 25% respectively have been lifted.
• The proportion of foreign capital invested in a securities company or securities investment fund management company shall be less than 51%. This limit will be removed in 2021.
HUMAN RESOURCES
Employment and entrepreneurship services for Hong Kong, Macau, Taiwan passport holders in Chinese mainland
In July 2018, the Ministry of Human Resources and Social Security released a circular on the provision of employment and entrepreneurship services for passport holders from Hong Kong, Macau and Taiwan living in the Chinese mainland.
Local authorities in the mainland will provide this group of people with basic public services, such as employment and entrepreneurship policy consultations, job referrals, as well as start-up incubation.
The public employment service system will be upgraded by the end of this year, allowing passport holders from the three locations to log in with mainland travel permits to access job-hunting and recruitment services.
Hong Kong, Macau, Taiwan passport holders no longer need work permits in Chinese mainland
On 3 August 2018, China’s State Council announced that it has cancelled all work permit applications of passport holders from Hong Kong, Macau and Taiwan living in the Chinese mainland. Residents from these three locations are no longer required to apply for a work permit to work on the mainland.
With this move, passport holders from Hong Kong, Macau and Taiwan living in the Chinese mainland are now directly subject to China’s labour and labour contract laws and will therefore enjoy the same level of legal protection as other mainland workers under these laws.
Mainland employers that recruit such personnel no longer need administrative permission from the government to provide them with social security benefits, such as pension and unemployment insurance and housing provident fund treatment.
However, mainland employers should be aware that such employees may maintain ties with other employers in Hong Kong, Macau or Taiwan as well, resulting in a dual labour relationship. Mainland employers should therefore minimise their risk of legal complications arising from this issue through labour contracts that require the employee to declare that he or she does not have a dual labour relationship.
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Established in 2001, SBA Stone Forest 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 navigate its regulatory and business environment.
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, hassle-free solutions for business assurance, accounting & advisory, payroll & HR advisory, tax compliance and advisory, risk management, and corporate advisory.
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