Jul 31

China’s Business Reform Success: Economies with the most notable improvement in Doing Business 2020

The annual World Bank publication - Doing Business covers areas of business regulations that are indicators which measure the ease of doing business in an economy, including: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.

Over the past two years, China has moved from 78th to 31st on the World Bank’s Ease of Doing Business rankings. China’s accelerated business reforms have shown significant improvement in rankings and has placed it at the forefront of global best practices in several areas.

China’s Improvements in the Global Doing Business 2018 - 2020 Ranking

Source: World Bank 2020

Significant Business Reforms:

  • In 2017, China launched online company registration and simplified social security registration in Beijing and Shanghai, as well as implemented a simplified company de-registration procedure nationwide.
  • The “five-in-one business license reform” and policies like “One Window, One Form” reduced the days needed for starting a company from 22.9 days to 8.5 days.
  • Simplifying the approval of construction permits for low-risk projects and other regulations have also reduced the total time needed to obtain building permits.
  • In 2018, China introduced a unified negative list system for market access across the country, allowing all types of market players to enter industries, fields, and businesses outside of the negative list.
  • In June, 2020, China introduced two negative lists for foreign investment, reducing the number of items from 40 to 33 on the national negative list and 37 to 30 on the free trade zone negative list.

written by Good Earth

Jul 30

In 2018, the Chinese government decided to categorize the entire province of Hainan as a free trade zone (FTZ). Recently, on June 1, 2020, Beijing has rolled out a master plan, introducing a series of special policies to develop Hainan into a high-level free trade port (FTP). The objective is to make Hainan FTP on par with other international trade ports such as Hong Kong, Singapore, Rotterdam, and Dubai by 2050.

The Hainan FTP aims to introduce more liberalized special customs supervision, which will allow free cross-border flows of trade, investment, capital, personnel, transport, and data. To upgrade its local economic and industrial structure, Hainan will also release its own Negative List [1] and provide broader market access for foreign investment in industries like high-tech, telecommunication, tourism, and education.

New Policies

1. Individual Income Tax

  • Lower IIT rate to 15% by 2025.
  • From 2025 to 2035, further reduce IIT rates to 3%, 10%, and 15% (three tax brackets) for eligible talents’ taxable income earned in Hainan (qualified talents must stay in Hainan for, no less than 183 days a year.)

2. Corporate Income Tax

  • Enterprises registered in Hainan and encouraged industries in Hainan may enjoy a lower CIT rate of 15% from 2020 to 2025.

  • By 2035, all enterprises will enjoy 15% CIT rate (if they are not in Hainan’s Negative List.)

  • Eligible capital expenditures can be allowed one-off pre-tax deductions or accelerated depreciation and amortization.

  • Income from new overseas direct investment derived by enterprises in the tourism, modern service, and high-tech industry can be exempt from CIT.

[1] Negative List

Special Administrative Measures on Access to Foreign Investment 外商投资准入特别管理措施

Free Trade Zone Special Administrative Measures on Access to Foreign Investment 自由贸易试验区外商投资准入特别管理措施

written by Good Earth

Jul 20

It is mandatory for foreign-invested enterprises to produce company chops after registering with the Administration of Industry and Commerce (AIC). They contain the full registered name of the company in Chinese and must be approved by the Public Security Bureau (PSB).

1. Official company chop

An official company chop is required when any important document is signed and can provide legal authority when opening a bank account or altering the name or business scope of the company. The official company chop symbolizes the legal capacity of a legal person and has the widest scope of use among all the chops. It can be used on all letters, official documents, contracts, and introduction letters issued in the name of the company, certificates, or other materials.

2. Finance chop

The finance chop is mandatory for opening a bank account, issuing checks, authenticating financial documents, such as tax filings and compliance documents, and for most bank related transactions. Although the company chop can often be used in its place, companies should keep their finance and company chops separate to avoid exposure to misuse. The chop must be recorded with the AIC, PSB, and the bank used by the company.

3. Legal representative chop

The legal representative chop is a personal chop owned by the legal representative of the company. A company can only have one legal representative, whom is the main principal of the company identified on the business license and has the authority to enter into binding obligations on behalf of the company. Upon registration, it must be recorded with the AIC, PSB, and the bank used by the company.

4. Contract chop

Many companies use a separate contract chop for signing contracts with their employees or executing agreements between salespeople and clients. This chop is not a statutory requirement, but it can serve in place of the company chop when used for contracts.

5. Invoice (fapiao) chop

The invoice chop is mandatory for issuing official invoices and tax receipts (fapiao). A chopped invoice is required to declare a purchase as a business expense.

Electronic chop

An electronic chop is the digital equivalent of a given chop used for online transactions, including financial and contractual ones. The Electronic Signature Law of the PRC recognizes electronic signatures, including electronic chops to have the same legal status as physical chops.

written by Good Earth

Jul 10

Beijing Customs pointed out that since the launch of the new cross-border e-commerce B2B export policy on 1 July, the cross-border e-commerce B2B accumulative export value has exceeded RMB 1 million over the past week in Beijing, a five-fold increase since the first day.

To achieve seamless connection between ports, Beijing Customs implements round-the-clock customs clearance services, and provides guidance for enterprise registration, on-site declaration inspection and system operations.

written by Good Earth

Jul 08

The Act for the Development of Biotech and New Pharmaceuticals Industry which is set to expire on December 31, 2021 is scheduled to be extended for another ten years by the government. The scope of application of the Act originally included New Drugs, High-risk Medical Devices, and Emerging Biotech and Pharmaceutical Products used by human beings, animals and plants. The new amendment plans of the Act will also cover eHealth and National Strategic Development of Biotech Products.

Tax Benefits:

Article 5

A Biotech and New Pharmaceuticals Company may, for a period of five years from the time it is subject to corporate income tax, enjoy a reduction in its corporate income tax payable for up to 35% of the total funds invested in R&D and personnel training each year.

Article 6

A profit-seeking enterprise that subscribes for the stock issued by a Biotech and New Pharmaceuticals Company and has been a registered shareholder for a period of three years or more, may, for a period of five years from the time it is subject to corporate income tax, enjoy a reduction in its corporate income tax payable for up to 20% of the total amount of price paid for the subscription of shares in such Biotech and New Pharmaceuticals Company.

written by Good Earth

Jul 02

Cross-border e-commerce (CBEC) is gaining momentum in China. Over the last several months, the Chinese government has been rolling out policies, including adding new CBEC pilot zones and pilot cities for CBEC retail importation, extending the CBEC retail import list, and lowering tax and tariffs.

The CBEC pilot zones are designed to boost  import and export businesses. In addition, the CBEC can also help foster new industrial chains like cross-border logistics, cross-border financial payment, and supply-chain finance, accelerating economic growth in China.

The Chinese government has also rolled out favorable tax policies for in-zone e-commerce export enterprises that are applicable nationwide:

CBEC retail export “duty free” policy

According to the Notice on Tax Collection Policies for Retail of Exports in CBEC Pilot Zones released by the Ministry of Finance and the State Taxation Administration (STA) in 2018, in-zone e-commerce export enterprises that have not obtained a valid proof of purchase (like input value-added tax invoice) are still allowed to be exempted from value-added tax (VAT) and consumption tax (CT) when exporting goods if they meet certain criteria.

CIT verification and collection policy

According to the STA Announcement on Issues Concerning the Levy upon Assessment of Income Tax on Retail Export Enterprises in CBEC Pilot Zone, released in 2019 and taken effect on January 1, 2020, the in-zone e-commerce export enterprises who meet certain criteria – corporate income tax (CIT) will be assessed and levied with a taxable income rate of 4 percent.

Furthermore, small low-profit enterprises may enjoy preferential CIT policies if they meet the conditions in addition to the aforementioned treatments. If the income of an enterprise is less than the amount of tax-free income as stipulated in Article 26 of the Corporate Income Tax Law of China, the CIT on such income can be exempted.

written by Good Earth

Jun 29

Currently, there are still many ambiguities in terms of taxation regulations for virtual currencies. The Taiwan Financial Supervisory Commission has not yet proposed any regulation for various coins. However, virtual currency trading platforms are an intermediary service provider for buyers and sellers, and the main income of such platforms is primarily through transaction fees, and the “listing fee” of the virtual currency issuer.

A virtual currency exchange operator provides a matching service between buyers and sellers. The main income of the transactions include handling fees (buy, sell, and receive currency) paid by both parties for the transaction, as well as the listing fee paid by the currency issuer. Some foreign exchange operators have also launched their own platform coins, for example: Binance launched BNB, Huobi has HT.

Taiwan’s taxation regulations for virtual currencies are still unclear. For example, the nature of various virtual currencies has not yet been confirmed. However, the taxation method for platform service fees charged from buyers and sellers by platform operators are as follows:

1. Business operation: Regardless of whether the trading platform is foreign or domestic, the income from transaction fees is considered sales of labor services in Taiwan and is subject to Value Added Tax (VAT). However, if it is a domestic platform business, the VAT can be calculated on a net service income basis.

2. Profit-seeking Enterprise Income Tax (Corporate Income Tax):

i. The income from service fees charged by a Taiwan virtual currency trading platform from buyers and sellers inside and outside of Taiwan should be included in the income of the current year, and file for income tax in May of the following year.

ii. For foreign companies that provide a trading platform for domestic and foreign buyers and sellers in Taiwan, if the buyer and seller, or one of them is an individual or profit-seeking enterprise in Taiwan, the platform service fee is also considered a source of income in Taiwan, and taxes are withheld in accordance with the relevant regulations from Income Tax on the sales income of cross-border electronic services. After withholding according to the total amount, companies may apply to claim related costs or expenses, or claim tax refund based on the assessed net profit rate and contribution.

Issues regarding virtual taxation may be due to the fact that servers, transaction parties and platform operators may be located in different taxation areas, which in turn lead to disputes over tax jurisdiction between countries. Virtual currencies keep relevant transaction records through decentralized ledgers, and transaction locations may add more variables.

The establishment of foreign virtual currency exchanges in countries that have not yet signed a tax treaty with Taiwan may add to the difficulty of correct tax filing and tax payment. There are still many tax issues that need to be addressed, discusses, and regulated in the era of crypto economy.

written by Good Earth

Jun 19

Offshore trade refers to a trade model in which the goods are transported directly from the exporting country to the importing country without entering the border of the country where the contracts, payments, logistics, insurances, financial arrangements, as well as other trading documentations are processed and administrated.

The Shanghai Free Trade Zone Offshore Trade Service Center was officially launched in April 2020, with more and more companies engaging in offshore trade expected to set up as a legal entity in the zone or move their regional headquarters, such as Volvo CE.

written by Good Earth

Jun 18

China Ministry of Finance and State Taxation Administration announced that taxpayers in the film industry will be exempt from VAT on income derived from the provision of film screening services. This is to apply retrospectively from January 1, 2020 to December 31, 2020. Losses incurred by film companies can now be carried forward an extended period to eight years from the previous five years, and any taxes and fees already levied for this year can be deducted or refunded in the following months.

Additionally, the Ministry of Finance and China Film Administration have stated that businesses in the film industry are exempt from paying the usual ‘cultural construction fee’. These supportive policies will assist film companies already operating in China that were impacted by COVID-19, as well as new entrants that begin operations before the end of the year.

written by Good Earth

Jun 17

The US and China move a step forward to work together. The US commerce department loosened its sanctions to allow US companies to collaborate with Huawei on setting technical standards that will determine the rules of the road for 5G and other emerging technologies, and not lose out by not being able to sit at the table with Huawei.

We hope that the US and China will work together from now onward to benefit the world and make it a better place.

written by Good Earth