Legal & Regulatory
Plan to develop foreign trade throughout 13th Five Year Plan released
The Ministry of Commerce (MOC) has issued a plan consisting of eight tasks to develop foreign trade during the 13th Five Year Plan period. The plan emphasizes collaborating with competent companies to extend the industry chain, conduct transnational mergers and acquisitions, gain brand advantage as well as core technology and marketing channels, and improve operations to meet international standards. It also espouses the promotion and development of an “Online Silk Road” economic cooperation pilot zone, noting that e-business among the countries and regions within the “One Belt and One Road” should be improved. Financial leasing is an important aspect, and the plan notes that financial leasing enterprises will be encouraged to conduct financial leasing for imported equipment. Competent enterprises are encouraged to carry out overseas resource and energy development as well as the processing, production and import of products that are needed in China.
Directory of relevant regulatory departments of foreign NGOs in China published
China’s Ministry of Public Security has published a list of activity fields and a project catalogue for foreign NGOs operating in China, and a directory of their respective regulatory departments for 2017. Such departments listed will serve as intermediaries between the Ministry of Public Security and foreign NGOs. The Listdivides different fields and matches them with the relevant governmental departments. For example, the General Administration of Sports would be responsible for administering sport NGOs. However, some of the fields will be jointly regulated by multiple government departments, such as NGOs engaging in environmental protection. Before applying for registration of a representative office with the relevant provincial-level People’s Government, a foreign NGO must first obtain approval from the listed intermediary government departments.
By Dezan Shira & Associates
Editor: Ari Chernoff
On November 28, 2016, China’s Ministry of Public Security published a guide for overseas non-government organizations (NGOs) seeking to establish a representative office (RO) in the country, clarifying the new regulations that apply to the sector. In 2016, the government passed two laws affecting China’s civil society sector. The Charity Law, passed this March, has been praised for its efforts to incentivize charitable giving by simplifying regulations and eliminating taxes on donations. However, the Overseas Non-Government Organization (NGO) Law, which will go into effect in January 2017, has been seen by many as a crackdown on the freedoms of foreign NGOs operating in China. The law subjects foreign NGOs to police supervision, and demands that they declare the sources of their funding.
For foreign NGOs currently operating in or looking to establish an RO in China, it is essential to understand the new procedures and requirements outlined by the Ministry of Public Security for the application and notarization process, particularly in light of the intense government scrutiny given to the sector.
Preferential tax policies implemented for advanced technology service enterprises
On November 10, 2016, the Ministry of Finance, the State Administration of Taxation (SAT), the Ministry of Commerce, the Ministry of Science and Technology, and the National Development and Reform Commission jointly issued a notice regarding an initiative for implementing preferential enterprise income tax (EIT) for advanced technology service enterprises that are located in cities with service trade innovative development pilot progams. Eligible business scopes include information system integration services, data services, research and experiment development services, industrial design services, intellectual property right cross-border license and transfer, cultural product digitalization and related service, translation, dubbing and production services of cultural products, and Chinese herbal medicine, medical, health care and related services. Between the period of January 1 to December 31, 2017, enterprises meeting the requirements in cities such as Tianjin, Shanghai, Hainan, Shenzhen, Hangzhou, Wuhan, Guangzhou, Chengdu, and Suzhou are eligible for to pay a reduced rate of 15 percent EIT. Employee education expenses incurred for such activities are also eligible for deduction from taxable income for up to eight percent of the enterprise’s wages; any excess is able to be rolled over to the following financial year.
By Samuel Wrest
2016 saw China pass two new laws that will play a major role in shaping its civil society sector. The Charity Law, already in effect, and the Overseas Non-Government Organization (NGO) Law, set for implementation in January, are closely intertwined, but while the former has been largely praised for incentivizing and making simpler charitable donations and funding, the latter has been widely condemned for restricting which charities can accept these donations and successfully operate in the Middle Kingdom.
China is a country that has traditionally struggled with funding its civil society. In 2012, charitable donations totaled US$13.2 billion – four percent of those made in the US. 2961 philanthropic foundations were registered during the same year – three percent of the US – and only 1.5 percent of those foundations actually funded grassroots NGOs. On the Charities Aid Foundation’s World Giving Index for 2015, China ranked 144th out of 145 countries, with only Yemen ranking below it.
The Charity Law is seen as an attempt to address this imbalance. The law contains various tax incentives for both charitable donations and charitable organizations themselves, potentially increasing the amount of funding that they receive. When considered alongside the Overseas NGO Law, however, the Charity Law’s potential impact is tempered. The NGO Law prohibits foreign charities from accepting donations in China, and looks set to further scale back their operations, significantly shrinking the pool of charitable organizations that the Charity Law could actually benefit.
Tax policies for the Shenzhen-Hong Kong Stock connect program clarified
The Ministry of Finance (MOF), the State Administration of Taxation (SAT), and China Securities Regulatory Commission issued a notice clarifying tax policies for the Hong Kong-Shenzhen stock connect (Cai Shui  No. 127), which will become effective on December 5, 2016. It touched on areas such as applied income tax for investment by Chinese nationals made in Hong Kong listed stocks, and Hong Kong nationals’ investment in stocks listed in Shenzhen. It also clarified the VAT and stamp duty policies concerning the Hong Kong-Shenzhen stock connect program. The notice stipulated that during the period from December 5, 2016 to December 4, 2019, the income of Chinese nationals deriving from price differences of the transacted shares listed in Hong Kong will be exempt from individual income tax (IIT).
VAT application of several services clarified
The SAT has issued an announcement clarifying taxation of various services (Announcement, .No. 69). It specially states that, for taxpayers who provide construction services, if a down payment and security deposit is deducted by the project contract from the payable construction cost, and is not invoiced, the date on which the taxpayer receives the down payment and security deposit will be considered the starting point from when the VAT liability arises. It also clarifies several services applicable for VAT, including overseas construction services, overseas tourism services, international shipment services, rental services of apartment hotels, examination services for overseas units, visa agency services, agency business for imported goods exempted from VAT, and the accommodation industry, in which VAT invoices are issued directly by taxpayers.
RELATED: Tax and Compliance Services from Dezan Shira & Associates
Campaign to promote supply-side structural reform and boost consumption planned
13 departments, including the Ministry of Commerce, the State Development and Reform Commission, the Ministry of Finance, the General Administration of Customs, and SAT jointly issued plans for a campaign to speed up innovation of domestic trade distribution, promote supply-side structural reform, and boost consumption (Shang Zhi Fa No. 427). It suggested that efforts should be made to expand and open up the service industry. A negative list and a management model of national treatment will be implemented over the trade and commerce logistics invested in by foreign companies. Policy allowing head offices and branches to pay VAT and EIT together will be further consolidated. It also details how port entry duty-free stores that have been approved by the State Council should be established in order to encourage direct sale of imported commodities.
Tianjin passes breastfeeding leave law
The Tianjin Municipal People’s Congress has passed a law guaranteeing the rights and interests of women who have recently taken maternity leave. Effective as of March 1, 2017, if a female employee encounters any difficulty after the end of maternity leave, she may apply to her employer to grant paid breastfeeding leave for up to six months. If an agreement regarding salary is not reached, 80 percent of the employee’s basic wage will be paid. The law emphasizes that taking breastfeeding leave does not affect employees’ promotion, wage adjustment, or their total length of service.
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Transition period for new cross-border e-commerce policies to be extended to late next year
On November 15, 2016, the Ministry of Commerce (MOFCOM) announced that the transition period for cross-border e-commerce would be extended to late 2017 in order to facilitate the introduction of the new regulatory model for such activities. Originally, the State Council approved that from May 11, 2016, a one year period would be provided for the transition to the full implementation of the cross-border e-commerce pilot program on all retail imports, which is currently applicable to bonded goods purchased online entering China via Shanghai, Tianjin, Hangzhou, Ningbo, Zhengzhou, Guangzhou, Shenzhen, Chongqing, Fuzhou, and Pingtan. Customs declaration forms for items entering these ports will temporarily not be checked, and requirements on first import licenses, registration, or archival filing will also be temporarily suspended for cosmetics, infant formula, medical instruments, special food (including dietary supplements and special formula food for medical use).
China and Malaysia sign tax agreement
On November 1, 2016, the Director of the State Administration of Taxation of China (SAT) and the Secretary General of the Malaysian Ministry of Finance signed an exchange letter between the government of the People’s Republic of China and the government of Malaysia on the Agreement on Taxation. The document further clarifies matters concerning tax exemptions detailed in the Tax Agreement between China and Malaysia, and will act to reduce the tax burden and financing cost of cross-border taxpayers between the two countries. The meeting between China and Malaysia also covered topics such as education, agriculture, customs, and defense, and served to encourage cooperation, stability, and development between the two countries.