Author Archives: China Briefing

Double Taxation Avoidance in China: A Business Intelligence Primer – New Issue of China Briefing Magazine

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CB 2014 10_cover_250x350 The newest issue of China Briefing Magazine, titled “Double Taxation Avoidance in China: A Business Intelligence Primer,” is out now and available as a complimentary download in the Asia Briefing Bookstore through the month of October.

In this issue:

  • An Introduction to Double Taxation Avoidance
  • Qualifying for DTA Benefits in China
  • Applying for DTA Benefits in China

Rising operational costs in China mean that business owners must be alert to all possible means of maximizing the performance of their China-based investments. As one such measure, the benefits obtainable under double taxation avoidance (DTA) agreements are of critical importance.

Over the past decade, China has taken active measures to promote the use of DTAs, such that it is now signatory to over 100 such treaties, either in-force or pending. This compares with the United States, which has ratified only 68 DTAs (including with China) – many of which are hindered by having been written prior the rise of the Internet.

Yet the complexities of applying for and securing DTA benefits in China – entailing coordination between the requirements of multiple jurisdictions, as well as considerable foresight on the part of foreign investors – mean they are all too often lost in the bureaucratic shuffle.

In our twenty-two years of experience in facilitating foreign investment into Asia, Dezan Shira & Associates has witnessed first-hand the development of China’s double taxation avoidance mechanism and established an extensive library of resources for helping foreign investors obtain DTA benefits. In this issue of China Briefing Magazine, we are proud to present the distillation of this knowledge in the form of a business intelligence primer to DTAs in China.

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 shanghai@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

Revisiting the Shanghai Free Trade Zone: A Year of Reforms
In this issue of China Briefing, we revisit the Shanghai FTZ and its preferential environment for foreign investment. In the first three articles, we highlight the many changes that have been introduced in the Zone’s first year of operations, including the 2014 Revised Negative List, as well as new measures relating to alternative dispute resolution, cash pooling, and logistics. Lastly, we include a case study of a foreign company successfully utilizing the Shanghai FTZ to access the Outbound Tourism Industry.

Adapting Your China WFOE to Service China’s Consumers
In this issue of China Briefing Magazine, we look at the challenges posed to manufacturers amidst China’s rising labor costs and stricter environmental regulations. Manufacturing WFOEs in China should adapt by expanding their business scope to include distribution and determine suitable supply chain solutions. In this regard, we will take a look at the opportunities in China’s domestic consumer market and forecast the sectors that are set to boom in the coming years.

Strategies for Repatriating Profits from China
In this issue of China Briefing, we guide you through the different channels for repatriating profits, including via intercompany expenses (i.e., charging service fees and royalties to the Chinese subsidiary) and loans. We also cover the requirements and procedures for repatriating dividends, as well as how to take advantage of lowered tax rates under double tax avoidance treaties.

Shanghai FTZ Introduces New Batch of Liberalization Measures for FIEs

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By Rainy Yao and Matthew Zito

SHANGHAI – On the occasion of the one-year anniversary of the Shanghai Free Trade Zone (FTZ), the State Council  has revised and implemented a slew of administrative measures related to foreign-invested enterprises (FIEs) in the Shanghai FTZ, as contained in the “Regulations on International Maritime Transport”, “Regulations for the Administration of the Salt Industry”, and “Catalogue of Industries for Guiding Foreign Investment.” These consist of liberalization measures for FIEs in terms of business scope, qualifications and foreign equity ratios.

Based on these adjustments, wholly foreign-owned enterprises (WFOEs) established in the FTZ have been newly approved to participate in industries such as petroleum exploration, real estate brokerages, and small-capacity motorcycle manufacturing.

In many cases the revisions are subtle, but they are absolutely not to be overlooked. For foreign investors in niche industries, even a small change in the wording of industry restrictions can mean the difference between being able to operate in the world’s second largest economy and being locked out of China. Indeed, criticism of the Shanghai FTZ as lacking any substantive innovation ignores the trees in search of a forest.

RELATED: Shanghai FTZ Revised Negative List Introduces Targeted FDI Reforms Continue reading…

China Regulatory Brief: China-Germany Trade Deals, Coal Import Tariffs, Guangdong Wage Guidelines

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China and Germany Sign Deals Worth US$18.1 Billion

On October 10, Chinese Premier Li Keqiang and German Chancellor Angela Merkel signed deals worth approximately US$18.1 billion during Li’s visit to Germany. The deals cover cooperation in areas including the agriculture, automotive, telecom, healthcare and education sectors. Li requested that Germany help to relax the EU’s high-tech export restrictions to China and continue expanding bilateral trade and investment. He further stated that the two countries should continue working together on feasibility studies concerning the proposed China-EU Free Trade Zone. The two sides also signed guidelines covering 110 cooperative agreements over the next five to 10 years, the largest of its kind among such agreements between China and other countries. Continue reading…

Why Your 2015 China Business Strategy Must Include Asia

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AB mag 2014 07_manufacturing hubs across emerging asiaThe China Price is Dead. It is the Asia Price that Counts.

Op-Ed Commentary: Chris Devonshire-Ellis

As we move into the tail end of 2014, many businesses are now starting to plan their China strategies for the forthcoming year. 2015 will be a significant year in Asia, with numerous trade development and incentive deadlines coming to fruition. These will have an immediate impact upon foreign investors in China, and in many cases will necessitate a change in business model.

While much media attention has concentrated upon the U.S.-led Trans-Pacific Partnership, this has yet to be finalized and potentially may never be so. Meanwhile, other agreements, which do not include the United States as a signatory, will ultimately shape the way that American and other foreign investors plan their 2015 strategies for China and beyond. Chief among these is the ASEAN Economic Community (AEC) compliance deadline that kicks in at the end of next year. Far too many China-focused executives, especially within SMEs, are blissfully ignorant of what this means and the impact it will have. Yet ignoring it could prove fatal.

Briefly stated, the AEC agreement reduces tariffs on products manufactured in ASEAN nations – and subsequently exported to China – to zero. This is due to affect some 90 percent of all products. Although countries like Indonesia, Malaysia, Philippines, Singapore and Thailand – the so-called “ASEAN 5″ – are already in compliance, others are not. Of these, Cambodia, Laos and Myanmar can effectively be written out of the manufacturing/sourcing equation, as for the most part their infrastructure problems continue to threaten the sustainability of production. Their day will come in a decade or so. Continue reading…

The Shake Up: Changing the Shareholder Structure of a Company in China

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By Zhou Qian and Rainy Yao

SHANGHAI – In China, the shareholders in a wholly foreign-owned enterprise (WFOE) are those who make capital contributions and represent the highest authority in the company. According to the Company Law, the functions and powers of shareholders are defined as follows:

  • Deciding on the operational policy and investment plan of the company;
  • Electing or replacing directors and supervisors who are not representatives of the staff and workers, and deciding on matters concerning the remuneration of directors and supervisors;
  • Examining and approving reports from the board of directors, reports from the board of supervisors or the supervisors, as well as the annual financial budget and accounts plan of the company;
  • Examining and approving the company’s plans for profit distribution and making up losses;
  • Adopting resolutions on the increase or reduction of the company’s registered capital, the issuance of corporate bonds, and the merger, division, dissolution, liquidation or transformation of the company;
  • Amending the company’s Articles of Association; and
  • Other functions and powers provided for in the company’s Articles of Association.

Continue reading…

Hong Kong-Chile FTA to Enter Into Force

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SHANGHAI – The free trade agreement (FTA) signed between Hong Kong and Chile will come into effect on October 9, according to an official announcement. The agreement, initially signed in September 2012, is Hong Kong’s first to be signed with a country outside of Asia or Europe. Its far-reaching provisions cover bilateral trade in goods and services, as well as investment, and entail commitments beyond those required by both parties’ membership in the World Trade Organization.

Chile will remove import tariffs on roughly 88 percent of scheduled items, and eventually remove tariffs on an additional 10 percent of items through 2017. The remaining 2 percent of tariff lines to be left untouched represent national priority industries such as cereals, sugars, and iron/steel components.

RELATED: Industry Focus: Importing Wine into China Continue reading…

Case Study: Using the Shanghai FTZ to Access the Outbound Tourism Industry

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By Maria Kotova and Kate Wang

A client in the tourism industry recently contacted Dezan Shira & Associates to advise them on how to best expand their scope of operations in the tourism industry. With the rise in income levels in China, outbound tourism has become one of the most profitable operations for travel agencies in China. The client, who had already engaged in domestic and inbound tourism in China for several years, requested that we investigate the options for foreign investment in the outbound tourism industry.

Pursuant to Article 21 of the Regulation on Travel Agencies (the “Regulation”) issued by the State Council on May 1, 2009, foreign investment in travel agencies is permitted for Sino-foreign equity joint venture (EJV) travel agencies, Sino-foreign cooperative travel agencies and wholly foreign-owned travel agencies, restricted to domestic tourism and inbound tourism only.

Further, according to Article 23 of the Regulation, “foreign-invested travel agencies shall not engage in overseas travel for Chinese mainland residents or business travel for Chinese mainland residents to the Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan.” Therefore, our client’s goal of expanding operations by adding outbound tourism to their business scope was determined to be impossible under the normal regulatory environment in China. Continue reading…

China Regulatory Brief: Coal Reform, RMB-Euro Trading, Import Measures

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Shanghai FTZ Further Revises FIE Regulations 

The State Council recently released the “Decision on Temporarily Adjusting and Implementing the Special Administrative Access Measures in the China (Shanghai) Free Trade Zone (Guo Fa [2014] No.38),” which took immediate effect. According to the Decision, wholly foreign-owned enterprises (WFOE) have been newly approved in certain industries such as:

  • Research and application of new technologies for petroleum exploration and development;
  • Research, development, design and manufacture of passenger service facilities and equipment to support high-speed rail, dedicated railway passenger lines and urban railways; and
  • Design of luxury cruisers and yachts.

A total of 27 liberalization measures were introduced for business scope items and foreign equity ratios.

China to Launch Coal Tax Reform

The Chinese government recently announced plans to launch a coal reform program, including a coal resource tax to be levied on an ad valorem basis – meaning that the rate will be set based on the resource price rather than quantity. In order to reduce the burden on the coal industry, other coal-related fees shall be cancelled, including the coal price regulation fund, ecological compensation fund for primary mineral products and local economic development charge. The reforms, which will begin on December 1, 2014, are aimed at promoting energy savings and emissions reductions.

RELATED: The East is Green: The Future of China’s Environmental Regime (Part 1 and 2)

RMB-Euro Direct Trading Opens

On September 29, the People’s Bank of China (PBOC) announced that China would allow direct trading between the yuan and the euro from September 30, 2014. Direct trading is expected to promote the internationalization of the renminbi, according to Ryan Song, Head of Global Markets at HSBC China. According to official data, bilateral trade between China and Europe reached US$291 billion in the first half of this year alone, growing at 12 percent year on year. The euro is now the sixth foreign currency to allow direct trading with the yuan – the others being the Japanese yen, Australian dollar, New Zealand dollar, Malaysian ringgit and Russian ruble.

China Implements Measures to Strengthen Imports

An executive meeting of the State Council, held by Premier Li Keqiang, has released a package of policies to strengthen imports and promote further liberalization of the industry. The meeting clarified that the import of advanced technical equipment and key components shall be highly encouraged. As a result of the meeting, China will adjust the “Catalog of Encouraged Imported Technology and Products”; further support enterprises engaged in import equipment financing and leasing services; and improve import tax policies for products connected with scientific and technological development. These measures come as a response to China’s declining imports volume and the likelihood of missing trade targets for a third consecutive year. In the first five months of this year, the country’s import volume was decreased by 1.6 percent (RMB 4.9 trillion).

Related Reading

Revisiting the Shanghai Free Trade Zone: A Year of Reforms
In this issue of China Briefing, we revisit the Shanghai FTZ and its preferential environment for foreign investment. In the first three articles, we highlight the many changes that have been introduced in the Zone’s first year of operations, including the 2014 Revised Negative List, as well as new measures relating to alternative dispute resolution, cash pooling, and logistics. Lastly, we include a case study of a foreign company successfully utilizing the Shanghai FTZ to access the Outbound Tourism Industry.

Adapting Your China WFOE to Service China’s Consumers
In this issue of China Briefing Magazine, we look at the challenges posed to manufacturers amidst China’s rising labor costs and stricter environmental regulations. Manufacturing WFOEs in China should adapt by expanding their business scope to include distribution and determine suitable supply chain solutions. In this regard, we will take a look at the opportunities in China’s domestic consumer market and forecast the sectors that are set to boom in the coming years.

Industry Specific Licenses and Certifications in China
In this issue of China Briefing, we provide an overview of the licensing schemes for industrial products; food production, distribution and catering services; and advertising. We also introduce two important types of certification in China: the CCC and the China Energy Label (CEL). This issue will provide you with an understanding of the requirements for selling your products or services in China.

Asia Briefing Bookstore Catalogue 2013