China Laws and Regulations Update in April 2015

  1. The National Development and Reform Commission and the Ministry of Commerce Publish the Catalogue of Industries for Foreign Investment (2015 Revised Edition)                            

On the 10th March 2015, the National Development and Reform Commission and the Ministry of Commerce of the PRC published the Catalogue of Industries for Guiding Foreign Investment (2015 Revised Edition) (“Catalogue”) under the approval by the State Council of the PRC. The Catalogue will become effective on the 10th of April 2015.

The Catalogue totally contains 432 items, from which 48 items of the 471 items totally contained in the 2011 Edition, have been eliminated. Among those eliminated items, 41 ones are under the restricted class, 5 under the priority class and 2 under the prohibited class. In addition, the number of items “limited to joint investment and cooperation” in the Catalogue is 15, decreased from 43 in the 2011 Edition and the number of items applicable only to “Chinese controlled businesses” in the Catalogue is 35, decreased from 44 in the 2011 Edition.

Items under the priority class newly added to the Catalogue mainly include modern agriculture, high tech, advanced manufacturing, energy conservation, renewable energy and modern service industries.

Sourced from the official website of the National Development and Reform Commission of the PRC:   http://bgt.ndrc.gov.cn/zcfb/201503/t20150313_667336.html

  1. The State Administration of Taxation Releases New Rules on Enterprise Income Tax Levied on Payments by Enterprises to Overseas Affiliates

On the 18th March 2015, the State Administration of Taxation of the PRC made the Announcement on Issues with Respect to Enterprise Income Tax Levied on Payments by Enterprises to Overseas Affiliates (“Announcement”). On the same date the Announcement became effective.

According to the Announcement, payments by enterprises to overseas affiliates should be made in compliance with the independent dealing principle and duly reported to tax authorities with competent jurisdiction, with contracts or agreements made between such enterprises and overseas affiliates and other materials, as supporting documents for real existence of related transactions and compliance with the independent dealing principle. The Announcement specifies four circumstances, under which the payments made to the overseas affiliates should be deemed as contrary to the independent dealing principle, including that a. the overseas affiliates receiving the payments have failed to duly perform functions and take risks and have not conducted any substantial business activities; b. the payments made to the overseas affiliates are for services rendered by the affiliates, from which the enterprises can get no direct or indirect economic interests; c. the overseas affiliates receiving payments for royalties on intangible assets only have legal ownership to such assets, but have made no contribution to value creation of such assets; d. the payments made to the overseas affiliates are for fringe benefits arising from financing and listing activities.

In addition, the Announcement requires that the rationality of payments for service charges should be analyzed from the beneficiaries’ point of view. More specifically, when dealing with the payments for service charges, one should take into account the issue of whether enterprises can get direct or indirect economic interests from the services they have paid or will pay for. The Announcement provides that payments for services rendered by affiliates, from which the payers can get no direct or indirect economic interests, should not be exempted from the enterprise income tax.

Sourced from the official website of the State Administration of Taxation of the PRC: http://www.chinatax.gov.cn/n810341/n810755/c1519231/content.html

  1. The State Administration of Foreign Exchange Publishes the Policies on Further Simplification and Amendment of Foreign Exchange Supervision Policies for Direct Investment                               

On the 28th February 2015, the State Administration of Foreign Exchange of the PRC published the Policies on Further Simplification and Amendment of Foreign Exchange Administration Policies for Direct Investment (“Policies”), which will become effective on the 1st June 2015.

The main contents of the Policies include a. cancellation of the requirement that foreign exchange registration for direct investment should be officially approved; b. simplification of the capital contribution status confirmation and registration supervision procedure for direct investment made by foreign investors within China; c. cancellation of the requirement that foreign exchange for overseas reinvestment should be filed on record; d. cancellation of the annual review policy on foreign exchange for direct investment; e. enhancement of in-process and after-the-fact administration and supervision.

Sourced from the official website of the State Administration of Foreign Exchange of the PRC:

http://www.safe.gov.cn/resources/wcmpages//wps/wcm/connect/safe_web_store/safe_web/zcfg/zbxmwhgl/zjtzwhgl/node_zcfg_zbxm_kjtz_store/ecb2730047782024852fa73b4795588d/

  1. The State Administration of Taxation Releases Enterprise Income Tax Preferential Policies for Small-Sized Less Profitable Businesses

On the 13th March 2015, the State Administration of Taxation of the PRC published the Enterprise Income Tax Break Policy for Small-Sized Less Profitable Businesses (“EIT Break Policy”). The tax calculation method specified therein became effective on the 1st January 2015. According to the EIT Break Policy, from the 1st January 2015 through the 31st December 2017, annual income taxes payable by small-sized less profitable businesses, whose taxable annual income does not exceed RMB 200,000, should be calculated on the 50%-off basis at the tax rate of 20%.

On the 18th March 2015, the State Administration of Taxation of the PRC made the Announcement on Issues with Respect to Further Expansion of the Scope of Application of the 50%-off Tax Break Policy for Small-Sized Less Profitable Businesses (“Announcement”), governing filing and payment of enterprise income taxes by small-sized less profitable businesses from the 1st of January 2015 through the 31st December 2017. According to the Announcement, eligible businesses, regardless of whether their payable taxes are calculated based on auditing results or on output and sales evaluation results, are entitled to enjoy the 50%-off tax break policy, the 20% tax rate and other preference stipulated by the C.S. (2015) No.34 File, without approval by tax authorities. The Announcement also provides ways of enforcement of the EIT break policy upon pre-payment for EIT.

Sourced from the official website of the State Administration of Taxation of the PRC:

http://www.chinatax.gov.cn/n810341/n810755/c1517141/content.html

http://www.chinatax.gov.cn/n810341/n810755/c1516220/content.html

http://www.chinatax.gov.cn/n810341/n810755/c1519190/content.html

  1. The State Council Issues Approval for Establishment of China (Hangzhou) Cross-Border E-commerce General Pilot Zone        

On the 12th March 2015, the State Council issued the Approval for Establishment of China (Hangzhou) Cross-Border E-commerce General Pilot Zone (“Approval”). The Approval requires that the general pilot zone should take the initiative to establish and implement technical standards, business procedures, regulatory policies and information technology application systems for cross-border e-commerce transactions, payment, logistics, customs clearance, tax rebate, foreign exchange settlement, etc., to gradually form global cross-border e-commerce development administration systems and rules and become able to offer replicable and extendable experience.

Sourced from http://www.gov.cn/xinwen/2015-03/12/content_2832995.htm

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