Closing Shop on China’s e-Commerce Platforms: Why Are Big Name Brands Leaving Tmall?

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By Zolzaya Edenebileg

It is old news that the Chinese market is highly competitive and unlike any other market in the world. What may sell on the high street in London is not guaranteed to sell in China. The rainbow-lensed promises of e-commerce seem to be an easy way to access China’s 770.4 million working population, 0.2 percent or over 1.5 million of which have an average income of US$500,000.

However, the online store closures of a number of retail and luxury brand giants indicate that the competition is no less fierce online.

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Cracking Down on Pollutants: Comprehending China’s New Environmental Protection Tax Law

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By Weining Hu

In December 2016, the National People’s Congress promulgated China’s first Environmental Protection Tax Law (the EPT Law), replacing the existing Pollutant Discharge Fees (PDF) system in a bid to strengthen the enforcement of environmental regulations. The EPT Law provides guidelines for levying taxes on entities that emit air and water pollutants, solid wastes, as well as noise pollution, and will come into effect on January 1, 2018.  Major contents of the EPT Law, such as taxable items, tax rates, and specification of taxpayers are largely consistent with the existing PDF system. However, changes concerned with tax incentives and administrating authorities significantly differ from the existing law. Given the EPT Law’s impact on China’s tax system, enterprises producing contaminants, as well as taxpayers and new market entrants need to understand the new developments in order to better prepare for future compliance requirements.

Environmental Protection Tax Law versus the Pollutant Discharge Fee system

Taxpayers: As stipulated in the EPT Law, taxpayers are defined as enterprises, public institutions and other business operations that directly discharge taxable pollutants within the territory of China. The EPT Law targets only operators associated with business activities, not individuals or non-business related entities, such as government institutions and PLA military. The meaning of “direct discharge” underscores the geographical location for where pollutants can be discharged. If a company discharges contaminants into open environment where no purification treatment exists, such activity is deemed as violation of the EPT Law. The EPT Law specifies that those discharging pollutants into urban sewage treatment plants and solid waste treatment facilities are exempt from paying tax, whereas factories that discharge pollutants into industrial discharge sewage treatment plants will be subject to taxation.

Taxable items: The EPT Law specifies four categories of taxable pollutants: air and water pollutants, solid waste, and noise. An appendix to the EPT Law, the List of Taxable Pollutants and Their Equivalent Volume, provides a comprehensive list of taxable items, which enterprises can use to ascertain the tax standard, and estimate payable tax before the law enters into force. It is noteworthy that certain types of pollutants are exempt from taxation, including pollutants discharged from agricultural production, motor vehicles, ships, aircraft, and legitimate urban sewage treatment plants. Carbon dioxide (CO2), which was debated during the drafting process, is not included on the pollutant list in the EPT law. With improved environment monitoring technology and knowledge, the government may adjust the current taxable scope when it feels it has reached sufficient capacity.

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Tax calculations: The EPT calculation mechanism is basically consistent with the PDF system. Tax is calculated based on the volume of the pollutants discharged, multiplied by the respective taxable item’s EPT tax rate.

Two calculation rules are noteworthy. First, the EPT Law provides a minimum tax rate for each pollutant category. The law also grants provincial governments discretion to adjust the applicable tax rate up to ten times the national standard level. Provincial governments may make adjustments based on their respective environmental capacity, economic growth goal and other development indicators. All adjustments are subject to approval by the Standing Committee of the National People’s Congress. Second, not all air and water pollutants discharged are subject to taxation. For each discharge outlet, the bureau taxes the top three air pollutants, the top five items in the first class water pollutant, the top three items of the other classes. For further instructions on pollutant tax calculation, please refer to our previous article on the EPT Law.

Preferential tax treatments and governing bodies

Preferential tax incentives: The EPT Law rolls out two tax breaks to encourage polluters to reduce their emissions of contaminants. If the pollutant emissions are 30 percent less than the permitted pollutant disposal standard, polluters can get a 25 percent cut from the payable amount. If the pollutant emissions are 50 percent less than the stipulated standard, a 50 percent cut from the payable amount will be granted to the subject company.

Collection and administration: The EPT Law grants both tax bureaus and environmental protection authorities the power to enforce new regulations. While tax authorities are in charge of tax collection, the environmental protection authorities are responsible for monitoring pollutants and providing corroborated statistics, helping the former to supervise tax declarations. Related authorities are currently drafting detailed regulations for implementing the EPT Law. Guidelines concerning how to monitor pollutants, how to collect taxes, and how to deal with appeals by taxpayers are still in the drafting process. It is recommended that enterprises keep up to date with the ongoing regulatory changes.

Key takeaways

With changes in China’s tax system, both new market entrants and consolidated foreign investors should identify whether their invested projects are liable to pay environmental taxes under the EPT Law. Foreign investors also need to pay attention to updates concerning implementing regulations and adjusted tax rates set forth by corresponding provincial governments in the operating locations. Since the implementation of EPT Law relies heavily on applications of pollutant monitors, there are business opportunities for those who provide environmental protection services or those who possess pollutant monitor technologies.


About
Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

 

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dsa brochureDezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.

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Doing Business in China 2017 is designed to introduce the fundamentals of investing in China. Compiled by the professionals at Dezan Shira & Associates in January 2017, this comprehensive guide is ideal not only for businesses looking to enter the Chinese market, but also for companies who already have a presence here and want to keep up-to-date with the most recent and relevant policy changes.


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Recent changes in China’s labor market have underscored the importance of having both an efficient HR system and a satisfied and reliable workforce, and the HR audit is a useful tool to ensure this. In this issue of China Briefing magazine, we provide a guide for conducting HR audits in China. We analyze why the HR audit is especially important for foreign companies operating in the country, and then detail the different HR audit models and procedures that are available to firms. 

China Market Watch: Salt Prices Stable After End of State Monopoly, and RMB 30 Billion Fund for Services Industry

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Salt prices stable and low following end of monopoly

China’s National Development and Reform Commission has said that the price of salt commodities will remain stable and low due to salt stockpiles and overcapacity. There is so much salt in fact that, at the end of 2016, reserves of table salt reached 1.55 million tons. Rock salt reserves reached 1.3 trillion tons, enough to supply 26,000 years of continuous consumption at the current annual output, which is 50 million tons. In 2015, 10.5 million tons of table salt were sold. Starting from the first day of this year, China ended its 2000 year monopoly of the production and sale of salt, in which salt bureaus exploited the market to gain significant profit.

RMB 30 billion fund for China’s services industry

The Chinese government plans to set up an RMB 30 billion fund aimed at boosting high value service exports such as finance, technology and culture. The majority of the fund will derive from private investors, with the Ministry of Finance contributing RMB 5 billion. The fund will be made available for all sorts of companies, including state owned and private enterprises. The fund is the first of its kind in China, and forms part of the country’s drive to shift towards an economy based on service exports.  According to the Ministry of Commerce, China’s import and export and services reached RMB 4.29 trillion in 2016, with the tourism industry the biggest contributor. However, China only accounts for six percent of the world’s service trade.

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New energy vehicles forecast good growth after subsidies cuts

January sales of new energy vehicles (NEVs) plummeted by 74.4 percent in January following a tightening in subsidies policies, after some companies were exploiting them. However, according to the China Association of Automobile Manufacturers, sales previous to this reached 507,000 in 2016, up 53 percent in 2015, and sales of NEVs are expected to maintain good growth this year. Although subsidies will be cut by 20 to 30 percent during 2017-2018, China’s development of NEVs is keeping up with the global market. Research and development is increasing with the inflow of investment, meaning that new products will come onto the market this year.

Mechanical industry reports strong growth  

China’s Machinery Industry Federation has reported that the country’s mechanical industry grew rapidly last year, mainly due to the fast developing automobile and electrical appliance segments. The automobile segment comprised nearly 60 percent of the industry’s revenue, recording increased profits of RMB 688.6 billion last year, up RMB 66.27 from 2015. Domestically produced cars sales increased by 20 percent, accounting for more than 40 percent of China’s overall car sales. The electrical appliance segment comprised 20 percent of the overall machinery industry. This year, particular attention will be paid to high end numerical control machine tools and intelligent equipment.


About
Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

Related Reading

dsa brochureDezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.

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Doing Business in China 2017 is designed to introduce the fundamentals of investing in China. Compiled by the professionals at Dezan Shira & Associates in January 2017, this comprehensive guide is ideal not only for businesses looking to enter the Chinese market, but also for companies who already have a presence here and want to keep up-to-date with the most recent and relevant policy changes.


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Recent changes in China’s labor market have underscored the importance of having both an efficient HR system and a satisfied and reliable workforce, and the HR audit is a useful tool to ensure this. In this issue of China Briefing magazine, we provide a guide for conducting HR audits in China. We analyze why the HR audit is especially important for foreign companies operating in the country, and then detail the different HR audit models and procedures that are available to firms. 

Navigating China’s New Improved Green Card Scheme for Foreigners

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By Dezan Shira & Associates
Editor: Weining Hu

On February 6, 2017, the Ministry of Public Security of the People’s Republic of China (MPS) announced that it would launch a joint effort with 20 departments to assess methods to improve the practical utilization of foreign permanent residence cards in China. The MPS also confirmed that a new version of the foreign permanent residence card, also known as China’s ‘green card’, will be available this year. Requirements and application for which can be seen here.

On the same day, President Xi Jinping held the 32nd meeting of the Central Leading Group for Comprehensively Deepening Reform (the CLG), where senior Chinese officials approved a set of reform proposals, including a decision to upgrade the security and identification features of the new green card.

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Asia Investment Brief: FDI Opportunities in Laos, Tax Residency in India, and RO Establishment in Indonesia

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Asia Investment Brief v1 (002)

Our weekly round up of other news affecting foreign investors throughout Asia:

ASEAN BRIEFING

Electrifying Laos: Opportunities for FDI in 2017

Laos has posted strong growth rates for the past ten years, ranging between seven and eight percent. Here, we outline opportunities for FDI in 2017.

INDIA BRIEFING

POEM to Determine Tax Residency in India from April 2017

Learn about the finalized guidelines for Place of Effective Management (POEM) regulations in India, which will come into effect from April 1, 2017.

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Understanding China’s Lifted Regulation for e-Commerce WFOEs Operating in Free Trade Zones

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By Tongyu Zhang

In June 2015, the Ministry of Industry and Information Technology (MIIT) published the Notice on Removing Restriction on Foreign Equity Ratios in Online Data Processing and Transaction Processing Business (Operating e-commerce), which allows foreign investors to hold up to 100 percent equity in an e-commerce company. However, it was not until one year later that the first wholly foreign-owned enterprise (WFOE), Heiwado (China) Co., Ltd, a Japanese company, obtained an operational internet content provider (ICP) license from the MIIT. While the Chinese government provides considerable policy support to the e-commerce sector, the specific definition of e-commerce is vague and can lead to a series of problems in practice. For instance, relevant authorities hold a more reluctant attitude towards e-commerce for services than towards commodities transactions.

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The BEPS Action Plan in China and Hong Kong: Impact Assessment for Foreign Enterprises

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By Jake Liddle

In October 2016, Hong Kong’s government issued a consultation paper for implementing measures to counter base erosion and profit shifting (BEPS) in the region.

BEPS refers to tax planning strategies that exploit discrepancies in tax laws in order to shift profits to jurisdictions where there are lower tax rates, often tax havens. While some methods are illegal, many are not, and can disrupt domestic market competition and undermine taxation systems. Because of their reliance on income tax, BEPS is particularly relevant to developing countries. The Organization for Economic Co-operation and Development (OECD) and G20 countries have formed an ‘inclusive framework’, which implicates over 100 jurisdictions to cooperatively implement the OECD/G20 BEPS package, a tool that provides governments with the means to tackle BEPS on domestic and international levels.

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China Regulatory Brief: Plan for Promoting Employment, and Development Zone Reform and Growth

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Plan for promoting employment during the 13th Five Year Plan period

The State Council has issued a plan for promoting employment during the 13th Five Year Plan period, which clarifies the guiding ideas, basic principles, major objectives, key tasks, and guarantee measures for promoting employment. According to the plan, by 2020, the employment scale will be expanded, while employment quality will further improve. New job opportunities in cities and towns will exceed 50 million in total, and the registered unemployment rate nationwide in cities and towns will be brought down under five percent. Nine specific tasks, including building a new-type employment model under the sharing economy, implementation of an entrepreneurship and innovation talent introduction program, supporting migrant workers to return to home to carry out pilot programs of entrepreneurship, implementation of an entrepreneurship training program, a program to advance the development of human resources service industry, have been identified to meet the requirements of the plan.

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