China’s VAT Reform and its Implications for RO Tax Structure

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vatBy Dezan Shira & Associates
Editor: Mia Yiqiao Jing

The finalization of value-added tax (VAT) reform on May 1, 2016 was China’s biggest tax overhaul within the last 20 years. Changes include the tax rate on business activities conducted by representative offices (ROs) in China, which has been reduced from five percent to three percent. The reduced tax liability on ROs may cause foreign investors to completely restructure their business practices to capitalize on the benefits of the reform. Currently, there is no written regulation on the applicable tax rates or tax payment methods for ROs. Taxpayers must contact the tax bureau in charge prior to filing taxes. In this article, we provide a brief introduction to China’s taxation rules on ROs, and look at the potential impact of the VAT reform on ROs’ tax structure.

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China-Israel Relations: Why the Tech Industry is Key to Bilateral Trade and Investment

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China Israel TradeBy Alexander Chipman Koty

In March this year, China and Israel officially launched discussions for a long-rumored free trade agreement (FTA), reflecting the budding rapport between the two nations. As China and Israel become progressively more politically isolated due to their assertive geopolitical policies, the two controversial states are growing their economic and political ties closer together. Israel’s traditional economic and political partners in the U.S. and Western Europe are becoming increasingly critical of their longtime Middle Eastern ally, while China’s aggressions in the South China Sea are unnerving Pacific countries wary of the Middle Kingdom’s rise.

In light of these political realities, China and Israel are finding each other to be convenient collaborators as they seek to diversify their economic dependence and profit from each other’s comparative advantages. Israel, with its small population of about eight and a half million and world class high-tech capabilities, and China, with its immense population, manufacturing prowess, and huge capital waiting to be spent, are naturally complementary economies. Despite presenting rapidly expanding bilateral trade and investment opportunities, however, sometimes divergent political interests and persistent concerns over IP protection prevent the countries from fully embracing their burgeoning friendship.

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China Market Watch: Slowdown in Plastics Industry and Massive Cuts in China’s Cement Industry

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China’s Plastics Industry Hits Slowdown

China’s plastics industry has experienced a bout of slower growth, with investment into plastics machinery dropping by six percent last year, the biggest fall since the global economic recession. Despite this, the plastics industry remains a key driving force of the global industry, and by other methods of measurement, the industry is still growing. 2015 saw a 10 percent rise in demand for plastics, a figure that is 1.5 times more than GDP growth. This demand largely originates from the manufacture of cars, mobile telephones and food packaging, industries that have been requiring increasingly more plastic. China exports three times more plastics than it imports, and exports continues to grow, driven by low production costs.  Commodities such as daily use products, plastic sheeting, construction materials and packaging comprises the major categories of those exports.

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China Outbound: Intellectual Property Rights in ASEAN & Evaluating Modi’s India

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In this edition of China Outbound, we focus on the evolving regulatory landscape across ASEAN nations, with expected changes for intellectual property rights in ASEAN, as well as the HR implications of Vietnam’s new criminal code. We also track India’s movements as the country signed the OECD Multilateral Competent Authority agreement to pressure multinational corporations to become more transparent in their business dealings in India. The agreement comes at a time when India is attracting more FDI than China, but concerns remain about the micro economy. We discuss the Modi government and its plans for the future of India.

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China’s New NGO Law and its Impact on FDI into the Higher Education Industry

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By Dezan Shira & Associates
Editor: Mia Yiqiao Jing

Invest in China's Education IndustryChina’s recently released law to regulate the activities of foreign non-governmental organizations (NGOs) has raised fresh doubts regarding foreign investment into China’s higher education industry. Set to come into effect in January next year, the law contains provisions that will further regulate education institutions with operations in the country and affect the entry strategy of new players looking to enter the market.

Powered by China’s economic development and a rapid increase in university student enrollment, there has been a sharp rise in interest from foreign education providers to invest in China since the turn of the century. The industry is potentially hugely profitable, with China’s increasingly affluent population willing to pay more in tuition fees to enroll at foreign education institutions, which are generally seen as more prestigious. However, Sino-foreign education institutions have long been subject to special scrutiny in China, resulting in 70 percent of Sino-foreign education applications being rejected in 2011. The new law is set to further complicate the industry for foreign education providers, raising questions of how best foreign investment can be channeled.

The Sino-foreign Education Industry

As of March 9, 2015, there were 60 Sino-foreign institutions and 1, 052 projects active in China’s higher education industry, with a total of 30 countries contributing to foreign education resources in the market. According to the Ministry of Education (MOE), the UK is the biggest source of foreign education investment, with 233 joint programs with Chinese universities, while the U.S. takes second place with 169 programs. Approximately 94.5 percent of foreign investors chose to form education projects in Chinese universities, within which computer science, accounting, and global economics are the three most popular undergraduate programs.  Provinces with a high GDP per capita, such as Beijing, Shanghai, Zhejiang and Jiangsu province, rank highest for the number of Sino-foreign education programs.

Professional Service_CB icons_2015RELATED: Business Advisory Services from Dezan Shira & Associates

Current Regulations on Foreign Investment

There are currently three ways to enter the Chinese higher education industry: an independent institution in cooperation with a Chinese university, a college affiliated to a Chinese university, or a joint education program. Upon establishment, both the foreign and Chinese parties must submit several different kinds of official documents, including identification, criminal records, and sources of funding.

According to the Regulations on Foreign-Chinese Cooperation in Running Schools, the president or principal administrator must be a Chinese national, who will decide and manage the board of trustees, implement financial budgets and activities, and take charge of quality control. The MOE oversees any changes made by the joint institution, and any imported teaching materials must be scrutinized and receive government approval.

The NGO Management Law and Sino-foreign Education Industry

While Sino-foreign education institutions are not the direct target of China’s new NGO Management Law, the law contains provisions that will further restrict their involvement in educational exchange in China.

According to the new management law, the entry of for-profit foreign schools will be strictly prohibited. Due to the vague definition of “non-governmental” and “non-profit” foreign NGOs, there is also a risk that the marketing and funding activities of not-for-profit education providers will also be impacted, as the law requires all financial documents remain available to the State Council.

The law states that in addition to receiving supervision from local authorities, foreign NGOs will also be reviewed by the Public Security Bureau. This will extend to foreign education providers, with activities such as registration, licensing, recruitment, operations, and education programs disclosed to the State Council.

Complying with the NGO Management Law

Because the NGO Management law doesn’t clearly indicate which practices are considered “for profit”, foreign investors should communicate with the MOE to ensure that their planned education programs and events don’t fall foul of regulations. It is also recommended that foreign investors regularly communicate with local governments in order to understand their area-specific development strategies, targets, and how education programs can boost local economic development, which will help alleviate any scrutiny.

Historically, most Sino-foreign universities have been subsidized by local governments. For example, the Ningbo government provided RMB 1.5 billion for the founding of The University of Nottingham Ningbo China, and the Pudong government gave away land for the building of NYU Shanghai. Mutual understanding is therefore key between foreign investors and local governments to reduce expenditure on the initial investment, and this will be especially true when the NGO Management Law comes into effect

Prospect for the Future

In line with China’s 2010-2020 Innovation Society Plan, Sino-foreign education will continue to be seen as a means to boost China’s knowledge economy.

Traditionally, Sino-foreign universities have targeted China’s more affluent coastal cities. However, the Chinese government is now putting more emphasis on providing high-quality education services to children living in rural areas, or to migrant families who have comparably lower household income. In addition, the MOE is giving more support to local governments from middle and Western China in education development, with plans in place for them to make up 44 percent of the total number of Sino-foreign programs. This initiative gives foreign investors more opportunities in a less saturated market.

With China targeting 20 percent of its energy mix to be clean before 2030, the Chinese government is also working to promote expertise in atmospheric science, disaster management, ecology and environmental engineering. Joint education programs targeting these subjects are therefore expected to have a promising future in the country’s higher education industry.

While the NGO Management Law stands to further impede foreign investment into China’s higher education market, the Chinese Sino-foreign education industry is still expected to expand overall. In order to ensure that their investment is worthwhile, foreign education providers will have to look closely at a number of influencing factors, including the location of their institution or program, the subjects that it teaches, and the setup and structure of their partner.


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 or visit

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Turning up the Heat: Understanding China’s Regional High Temperature Allowance

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By Dezan Shira & Associates, Shanghai
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As summer approaches, a notice detailing temperature standards in Shanghai workplaces and the proper payment of the high temperature allowance has been released. Effective from June 1, 2016, the notice stipulates that between the months of June and September, Shanghai companies with outdoor labor must take effective measures to maintain a workplace temperature of below 33℃. Employers who fail to keep suitable temperatures are legally obliged to pay a monthly high temperature allowance of RMB 200 to employees, which must be included in the sum of the total salary. In addition, while paying the allowance, companies are still required to provide employees with cool beverages.

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Leveraging IT to Facilitate Efficient Payroll Processing in China

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Not so long ago, it was common for organizations in China to share input data for their monthly payroll with their payroll processing vendors across corporate email. It was also not unusual for those vendors to process their clients’ payroll using Excel sheets. Nowadays, the advent of secure FTP links to allow uploading and downloading of sensitive HR information has eliminated confidentiality concerns relating to data transmission. Payroll processing companies have also developed sophisticated systems to make payroll calculations and produce the reports their clients require, instead of fiddling with formulae in Excel. However, the gathering of input information has remained a significant challenge.

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China Regulatory Brief: Employee Stock Ownership Reform & VAT Incentives for Hiring Disabled Workers

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The SOE Employee Stock Ownership Pilot Reform Program to be Initiated

China’s State-owned Assets Supervision and Administration Commission has recently announced its decision to launch a pilot stock ownership reform program, targeting employees who work in State-owned enterprises (SOEs). The Opinions have been approved by the Leadership Group on SOE Reform of the State Council, and will soon be submitted to the Central Government for permission. According to the State-Owned Assets Supervision & Administration Commission, a handful of enterprises will be selected from the central enterprises and the local SOEs as the first batch of enterprises to be enrolled in the pilot reform program. Efforts will be made to work out an effective model of employee stock ownership from the perspectives of the varying types of enterprises enrolled in the program. Aspects such as mode of capital contribution and share purchase, pricing mechanisms and holding methods will also be explored. Priority will be given to support science and technology enterprises to carry out the pilot program, and central enterprises will not be subject to temporary enactments of the pilot program.

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