China Regulatory Brief: IIT Reform & New FTZ Establishment

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China Plans to Establish the Beijing-Tianjin-Hebei FTZ
Plans are soon due to be released for the Beijing-Tianjin-Hebei Free Trade Zone (FTZ), aimed at the coordinated development of Beijing, Tianjin and Hebei. It is being speculated that Jingtang Port and Caofeidian in Hebei may be cornerstones of the new zone.

Currently, there are two main theories of how the FTZ will be administered: either the Tianjin and Hebei FTZs will be consolidated as the Beijing-Tianjin-Hebei FTZ, or the two will be established later as independent FTZs.

China and the Netherlands Build an Open and Pragmatic Comprehensive Partnership
On March 23, China and the Netherlands announced plans to build an open and pragmatic partnership emphasizing the expansion of trade and investment between the two countries in high-end manufacturing, energy conservation, financial services and other emerging industries.

A trade agreement on dairy products, expected to significantly improve China’s dairy industry, was also signed between the two countries. Enterprises in the two countries are encouraged to develop third-party markets outside of Europe and Asia.

Additionally, the Netherlands pledged to open a consulate in Chongqing.

China Ends Anti-Dumping and Anti-Subsidy Probe into EU Wine
The Ministry of Commerce (MOC) ended an anti-dumping and anti-subsidy probe into EU wine on March 24, after a memorandum of understanding was reached between Chinese and European winemakers.

Launched on July 1, 2013, the one-year anti-dumping probe had been a sticking point in Sino-EU relations, especially for major wine producing nations such as France.

China Plans to Reform Individual Income Taxation
The Ministry of Finance (MOF) said on March 23 that China plans to reform individual income taxation (IIT), and following this, impose a capital gains tax.

Under the current system, income earned by individuals in China are divided into various categories (e.g., salaries and wages; royalties; interests, dividends and bonuses; income from property transfer; etc.) and subject to different tax rates and taxable income calculations. The next step in IIT reform will be to replace the current system with an integrated, comprehensive taxation system, meaning that tax collection will be based on the total personal income, with the family as a taxable unit.

Citing unsuitable conditions for imposing the tax at present, the MOF stated that a capital gains tax will be launched in two years at the earliest.

China Clarifies Tax Refund Policy on Goods Exported by Foreign Trade Service Providers
To promote the participation of SME’s in the international marketplace, China’s State Administration of Taxation (SAT) released an announcement regarding tax refunds on goods exported by foreign trade service providers. The announcement stipulated that the export goods of a foreign trade service provider under contract between a domestic manufacture and an overseas entity or individual may be eligible for VAT refund, provided that the service provider satisfies certain conditions.

The new provisions will take effect on April 1, 2014.

Shanghai Free Trade Zone Management Committee Move Offices to Lingang
On March 31, the management committee of the China (Shanghai) Free Trade Zone (FTZ) moved its office to the Lingang area, leaving only the FTZ Waigaoqiao Office with the General Service Hall at the same place to handle registration for enterprises and other related matters. It is still unknown whether other departments such as customs, tax and quality inspection will also be moving to the Lingang area.

An official with the Shanghai FTZ said that the move is expected to achieve the dual purposes of making room for new companies to set up in the Waigaoqiao area and to promote the development of Lingang. It is also believed that it will help establish the Yangshan Deep-Water Port as an international shipping center.

Preferential policies continue to apply in Lingang, including fiscal support and simplified administrative approval. Additionally, Metro Line 16, which is expected to connect Lingang to central Shanghai, will soon be put into operation.

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