China Regulatory Brief: Shanghai FTZ Allows Foreign E-commerce Companies, Consumption Tax Raised on Fuel Oil
On January 13, China’s Ministry of Industry and Information Technology released an announcement allowing foreign investors to set up wholly foreign-owned e-commerce companies to conduct online data processing and transaction processing (for-profit e-commerce) businesses in the Shanghai FTZ. Previously, the shares a foreign party was permitted to own in such businesses was limited to 55 percent in the FTZ and 50 percent in other parts of China. Meanwhile, foreign investors may now provide call center, domestic multi-party communication, internet access and domestic VPN services as cooperative joint ventures with a Chinese partner, also within the Shanghai FTZ.
China Grants Tax Exemptions for Elderly Care, Traditional Medicine and Protecting Historical Relics
China’s Ministry of Finance and State Administration of Taxation recently released the “Circular on Business Tax Policies to Support the Export of Cultural Services and Other Services (Cai Shui  No.118),” which took effect on January 1, 2015. The circular exempts companies and individuals from business tax if they restore or protect cultural and historical relics, provide traditional health care (included in the national directory of intangible cultural heritage) or elderly care in China.
China-Switzerland DTA Comes Into Effect
On January 6, China’s State Administration of Taxation announced that the double taxation avoidance agreement (DTA) between China and Switzerland entered into force on November 15, 2014 and applies to income derived on or after January 1, 2015. The DTA shall apply uniformly to both income tax and property tax. The agreement clarifies the tax treatment for issues such as permanent establishment, business profits, related parties, dividends, interests and gambling bonuses. As well, international transport companies are made eligible for zero-rated value-added tax (VAT) and business tax exemptions in China. The complete agreement can be found here.
China Raises Consumption Tax on Fuel Oil
On January 12, China’s finance and taxation authorities released a circular announcing plans to raise consumption tax for petrol, naphtha, solvent oil and lubricating oil by RMB 0.12 per liter starting from January 13. Meanwhile, consumption tax for diesel, aviation kerosene and fuel will increase by RMB 0.1 to RMB 1.2 per liter. This is the third consumption tax hike, following one in November and another in December 2014. The increase is expected to control air pollution and support the renewable energy sector. China’s consumption tax, introduced in 1994, is levied on high-energy and high-pollution goods.
China Adjusts Basic Pension Standards
On January 10, the Ministry of Human Resources and Social Security released an announcement stating that from July 1, 2014, the national minimum pension base for both rural and urban areas would be increased from RMB 55 to RMB 70 per person per month. In China, most regions and cities have their own minimum pension base built on the provincial standard according to local economic conditions. This is the first time China has adjusted the national minimum pension base since 2009. More than 140 million elderly residents will benefit from this adjustment.
Guangdong Adjusts Regional Pension Contribution Base
The Guangdong Social Security Bureau has issued a new circular adjusting the provincial pension contribution base and contribution rate, effective January 1, 2015. Social security contributions are based on an employee’s average monthly income from last year, called the “contribution base.” Most cities set minimum and maximum figures for the contribution base, as well as the percentages of that rate which the employer and employee must contribute to the social security fund, called the “contribution rate.”
The recent circular allows cities in Guangdong to set a contribution rate between 13 and 15 percent. The city of Dongguan has already announced it will set the rate at 13 percent.
The decision also raises the pension contribution base in Guangdong from RMB 2,139 to RMB 2,408. For example, for an employee making RMB 2,000 a month, both the employer and employee now need to make pension fund contributions as if the salary were RMB 2,408.
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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.
Double Taxation Avoidance in China: A Business Intelligence Primer
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.
Social Insurance in China
In this issue of China Briefing Magazine, we introduce China’s current social insurance system and provide an update on the status of foreigners’ participation in the system. We also include a comprehensive chart of updated average wages across China, which is used to calculate social insurance contribution floors and ceilings. We hope this will give you a better understanding of the system in China.
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