China Regulatory Brief: Relaxed Incorporation Requirements & Preferential VAT Policy

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China to Launch Customs Clearance Integration in Beijing, Tianjin and Hebei Province

On June 23, the General Administration of Customs (GAC) released the “Announcement on Integrating Customs Clearance in Beijing, Tianjin and Hebei Province (GAC Announcement [2014] No.45).” Integrating customs clearance in these three areas means that, when importing or exporting goods, enterprises established in these three provinces can choose either the Customs of the location where they conducted business registration or the Customs where the goods are actually imported/exported for the declaration, tax payment and clearance of their goods. The integrative clearance practice will be first implemented in Beijing and Tianjin on July 1, 2014 and October 1, 2014 in Shijiazhuang, Hebei.

China Loosens Requirements for Foreign Investment Approval

China’s Ministry of Commerce (MOFCOM) recently released the “Circular on Improving the Examination and Management of Foreign-invested Enterprise (FIE) Approval,” which substantially relaxes the incorporation requirements for foreign investment. According to the Circular, requirements on the ratio of initial capital contributions have been abolished, meaning that eligible FIEs can complete the business registration process without having to inject any initial capital upon startup. Meanwhile, company shareholders will be able to decide on the amount, method and deadline for capital subscriptions at their own discretion. Notably, FIEs will still be required to abide by the ratio between registered capital and total investment, as stipulated by the State Administration for Industry and Commerce (SAIC).

International Waterway Transport Services to Receive Zero VAT Rate

The Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly released the “Supplementary Circular on the Zero-rated Value-added Tax (VAT) Policy Applicable to International Waterway Transport Service (Cai Shui [2014] No.50), which will take effect on July 1, 2014. According to the Circular, a zero-rate VAT will be granted to domestic entities and individuals who have already obtained either the Registration Certificate for International Liner Shipping Business, or the Waterway Transport Service License that allows for international passenger and goods transport services, issued by the transport authorities.

China Announces Employee Stock Ownership Plan

On June 20, the China Securities Regulatory Commission (CSRC) released the “Guiding Opinions on Listed Company’s Pilot Implementations of Employee Stock Ownership Plans (CSRC Announcement [2014] No.33).” According to the Opinions, companies listed on a Chinese stock exchange will soon be able to offer employee stock ownership plans (ESOP) as a type of employee benefit. The total stock held by employees shall not exceed 10 percent of the company’s total capital stock, while the total stock owned by an individual employee shall not exceed 1 percent. Moreover, the Opinions stipulate the lock-up period for stocks (12 months) as well as the minimum period over which stocks may be held by employees (36 months).

Shanghai Lifts the Upper Limit of Interest Rate on Small-sum Foreign Currency Deposits

On June 26, the Shanghai People’s Bank of China (PBOC) announced that the Shanghai Free Trade Zone pilot reforms in lifting the upper limit of interest rate for small-sum foreign currency deposits would be expanded to the whole of Shanghai starting June 27. This financial reform policy was implemented in the Shanghai Free Trade Zone (FTZ) in March of 2014. Based on the reform, financial institutions in Shanghai can set the interest rates for foreign currency deposits independently. This is the first financial reform policy that has spread out of the Shanghai FTZ.

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