China Market Watch: Labor Dispatch Industry Alert and Mobile Payment Market
China Labor Dispatch Industry Alert
All types of enterprises established in China, including foreign-invested enterprises (FIEs), are required to cut their dispatched employees to 10 percent of their total number of employees by March 1, 2016. In early 2014, China’s Ministry of Human Resources and Social Security (MOHRSS) promulgated the “Interim Regulations on Labor Dispatch,” which imposed strict restriction on the number of dispatched employees an enterprise may hire. Considering the fact that most manufacturers in China largely rely on dispatched employees to support their seasonal cycle of business operation, the MOHRSS allowed a two-year transition period for enterprises to gradually reduce their dispatched employees before March 1, 2016.
Below we provide four feasible options for companies trying to comply with the new rules while maintaining their business scale:
- Hire dispatched employees as regular employees;
- Return dispatched employees to the labor dispatch agency in cases where the company is going through a business restructuring process or the contract term is expired;
- Adjust cooperation with the dispatch agency and outsource some of the companies’ non-core business or the accounting and payroll management to an accounting firm; and
- Terminate contracts with the dispatched employees based on mutual agreement.
Stepping into China’s Mobile Payment Market
On Thursday last week, Apple officially launched its mobile payment service in China, the company’s second largest market. The company’s product Apple Pay allows users of the iPhone 6 or more advanced versions, certain iPads and Apple Watches to use these devices and buy items in the stores equipped with the near field communication (NFC) technology. Apple’s alliance with China’s state-owned bankcard association, China UnionPay, was announced in December last year. Following the announcement, the Chinese government released the “Administrative Measures on Online Payment Services provided by Non-bank Payment Institutions,” which will limit the amount an individual can pay online per day through third-party payment accounts once enacted.
China is undoubtedly one of the fastest growing mobile payment markets in the world with its smartphone penetration rate of 62 percent in 2014. However, China’s third-party mobile payment market is dominated by internet giants Alibaba Group Holding and Tencent Holdings – the two companies combined have more than 90 percent of the mobile payment market.
China to Build a Favorable Tax Environment for Low Profit Enterprises
China’s tax bureau has recently rolled out a slew of regulations to simplify the tax filing procedure and lift tax burden for low profit enterprises. Taxpayers with monthly sales revenue not exceeding RMB 100,000 are now exempt from certain surcharges including educational surcharges, local education surcharges and water conservancy construction charge. Further, companies that have been recognized by the tax bureau as the “Level A” taxpayers will be exempt from verification when they use the value-added tax (VAT) invoice issued by the sellers to offset their VAT liability. Instead, they may use the online VAT invoice management system for tax reduction purposes.
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