Viewpoints from Kaizen

On 31 August 2018, the Chinese Government released newly amended Individual Income Tax Law (new IIT Law). This is the 7th revision to the law since its implementation since 1980. This 7th amendment introduced the concept of comprehensive income and is arguably the largest amendment to the law yet, in terms of the scope and importance of the changes. The new IIT Law is set to take effect on 1 January 2019. This amendment to the IIT Law and is considered to be the most important once as it includes fundamental changes to the definition of a resident and the consolidation of various categories of income. It is grouped four categories of labor income, including income from salary and wages, income from provision of independent personal services, income from author’s remuneration and income from royalties, into the scope of “Comprehensive Income”, and one set of progressive tax rates will apply […]

1. General Industries A. The rate of corporate income tax charged on foreign-invested enterprises (FIEs, particularly Wholly Foreign Owned Enterprises) has decreased from the original 30% to the present 15%, while the local income tax levied at the rate of 3% is exempted. *(Note 1) B. China’s tax law provides that a foreign-invested manufacturing enterprise is allowed two-year’s exemption of corporate income tax starting from its incorporation, and a tax credit valued at the half of corporate income tax in the ensuring three years. After the tax allowance polices expire, certified enterprises-for-export are allowed a reduced rate of 10% of corporate income tax provided the volume of exports accounts for 70% or above of the current production; and advanced-technology-enterprises are allowed a three-year extension of a reduced corporate income tax rate of 10%. *(Note 1) C. The “land use fee” charged on certified enterprises-for-export may be reduced to half; and […]

The Zhongguancun Science Park, the first hi-tech one at the state level, is composed of the Haidian Development Area, Fengtai Development Area, Changping Development Area, Electronics Town Science and Technology Development Area, and Yizhuang Science and Technology Development Area. It is currently home to 8,000 enterprises armed with new technology. There are 180 enterprises whose income on technological transfer and trade each surpasses 100 million Yuan, over 1,400 foreign-funded enterprises, 43 out of Top 500 in the world, R&D institutions run by Microsoft, IBM, Motorola and 20 other multinational corporations, and about 1,200 enterprises launched by more than 3,600 fellows who studied abroad. Lenovo (Legend), Founder and some other enterprises,who represent the image of hi-tech enterprises of modern China, have also set up businesses in Zhongguancun Science Park. In terms of the income from technological trade, added value, tax payments to the State and export value, Zhongguancun Science Park’s ranking […]

Stamp Duty is a tax levied on the documents written, received in the economic activities. The primary laws, regulations in respect of stamp duty are Provisional Rules of the People’s Republic of China on Stamp Duty (the “PRSD” and Provisional Rules on Stamp Duty Implementing Rules (the “PRSDIR”). Taxpayers of Stamp Duty The taxpayers of stamp duty include any enterprise, unit, individual household business operators and other individual who executes or receives specified economic documents within the territory of China. Taxable Items and Relevant Rates There are thirteen taxable items and relevant rates applied respectively regulated in the Appendix of the “PRSD” as follows: 1. Purchase and sale contracts, including contracts of supply, repurchase, purchase for an organization or enterprise, purchase and sale combinations and co-operation, adjustment, compensation, barter etc. (stamp duty of 0.03% of the purchase of sale price) 2. Process contracting contracts, including processing, specific orders, renovations, repairs, […]

In addition to a set of nationally applicable preferences, foreign investors in Shenzhen enjoy a package of exclusive incentives: 1. While corporate income tax stands at 15%, a three percentage of local income tax is also exempted. 2. Export companies at the expiration of tax exemption and reduction period enjoy a reduced rate of 10% for income tax provided the export volume accounts for 70% of the total industrial output. Local enterprises using state-of-the-art technology at the expiration of tax exemption and reduction period are entitled to a reduced tax rate of 10% for a 3-year extension. 3. Foreign invested operations engaged in high-tech industries are free of income tax for 2 years and enjoy half reduction for the ensuing 8 years. Having successfully absorbed the related technologies and started production, the high-tech projects are given3 years of income tax exemption on the profit hitherto made regardless of previous tax […]

After 3 rounds of public consultation and 4 rounds of examinations by the legislators in 5 years, on August 31, 2018, the Chinese Government officially promulgated and issued an “E-Commerce Law of the People’s Republic of China” (hereinafter referred to as the “Law”). The Law took effect on January 1, 2019. This is the first time that China enacted and promulgated a law specifically targeting the e-commerce market. In year 2017, the amount of national electronic commerce transactions reached RMB29.16 trillion, 11.7% higher than year 2016; the national online retail sales of goods and services reached RMB7.18 trillion, 32.2% higher than a year ago. In year 2018, e-commerce continues to grow in a very fast pace in China. During the first 3 quarters, the national online retail sales of goods and services reached RMB6.28 trillion, 27% higher than that in year 2017. Online sales of goods and services accounted 17.5% […]

1. Introduction This guide provides an overview of the matters relating to the incorporation of a Wholly Foreign Owned Enterprise (WFOE) in Beijing, China, to engage in intellectual property agency service. The requirements, procedures and matters needing attention associated with such establishment are hereby presented as a reference for Kaizen’s clients and potential clients. 2. Features of WFOE (1) Type of Company Commonly used by foreign investors Investment in WFOEs is now the most popular foreign direct investment vehicle in the PRC as the investor may completely control over their business entity as well as enjoy the full profit from its operation. A WFOE refers to an enterprise that is established by one or more foreign companies, enterprises and other economic organizations or individuals (including investors from Hong Kong, Macau and Taiwan region) with sole foreign capital in the PRC in accordance with the PRC law. A WFOE is formed […]

Guide to Setting up Wholly Owned Foreign Enterprise in Shanghai, China Foreign enterprises can establish Wholly Owned Foreign Enterprises (WOFE) in Shanghai upon application and approval. Characteristics of a WOFE Wholly Owned Foreign Enterprise (WOFE), normally in the form of a limited liability company, the establishment of which is governed both by the Company Law of the People’s Republic of China (PRC) and Law of the PRC on Enterprises Operating Exclusively with Foreign Capital (“外資企業法”). A WOFE can engage itself in approved business activities and issue tax invoices on its own. It is a corporation and a tax resident. All shareholders of WOFE should not be Chinese nationals or China incorporated enterprises. In terms of company registration, Hong Kong and Macao residents and companies are not considered to be China nationals. Company Name The name of the WOFE is governed by “Regulations on the Management of name of Enterprises ” […]

Introduction to Foreign Invested Commercial Enterprise (FICE) With China’s WTO accession, further opening up to foreign investors, restrictions on certain foreign-invested trading projects have been gradually phased out. Chinese government issued “Measures for the Administration on Foreign Investment in Commercial Fields”, starting from 11 December 2004, foreign investors have been allowed to establish wholly foreign owned commercial enterprises (wholesaling and retailing WFOE) in the PRC. The term used for this type of company is Foreign Invested Commercial Enterprise or in short “FICE”, still mainly in the form of a Limited Liability Company. Greater discretion for foreign investors as WFOE can now freely purchase and sell domestically. The “Foreign Invested Commercial Enterprises” shall refer to the enterprises with foreign investment which undertake the following business activities: 1. Commission agency: selling agents, brokers, auctioneers or other wholesalers for goods, who sell goods of other people and provide relevant attaching services through collecting […]

Introduction to Foreign Invested Commercial Enterprise (FICE) From 1 December 2004, a new investment vehicle has been made available to foreign investors as the Chinese government is allowing and encouraging foreign investors to set up “Foreign Investment Commercial Enterprises” (FICEs) in China to conduct wholesale, retail and other permitted businesses. This type of business entity possesses the total right of trade and business. It can conduct import/export activities by itself, independent of the local import and export company and does not require the setting up of a manufacturing company. Furthermore, from 1 March 2006, FICEs are permitted by law to apply and obtain approval documents from the Shenzhen Bureau of Trade and Industry in the Shenzhen City, instead of from Ministry of Commerce in Beijing. The FICE is normally in the form of a Limited Liability Company wholly owned by one of more foreign investors (both foreign individuals and corporations). […]