Viewpoints from Kaizen

Equity joint ventures are the second most common manner in which foreign companies enter the China market and the preferred manner for cooperation where the Chinese government and Chinese businesses are concerned. Joint ventures are usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how, and marketing experience of the foreign partner. Normally operation of a joint venture is limited to a fixed period of time from thirty to fifty years. In some cases an unlimited period of operation can be approved, especially when the transfer of advanced technology is involved. Profit and risk sharing in a joint venture are proportionate to the equity of each partner in the joint venture, except in cases of a breach of the joint venture contract. Shareholdings in a joint venture are usually non-negotiable and cannot be transferred without approval from […]

China’s re-entry into the World Trade Organisation (“WTO”) in December 2001 represented a fundamental shift in China’s commercial and legal environment. A new wave of foreign investment is now permitted as China begins to open certain industry segments, particularly in the services sector, that previously were closed to foreign participation. Whereas previously only major multi-national corporations were equipped to manage the complexities of investment in China, more and more small- and medium-sized foreign enterprises are entering China as it becomes the workshop for the world, increasingly in high technology areas as well as in more traditional manufactured goods. Operations of multinational corporations in China are becoming increasingly more localized, and Chinese enterprises are becoming increasingly sophisticated and internationalized. Certain remnants of the old centrally-planned economy have not yet been fully discarded, but the direction of change in China continues to be positive and the pace of change continues to be […]

Item Name of Law/Regulations Code 1 Individual Income Tax Law of the People’s Republic of China   2 Regulations for Implementation of the Individual Income Tax Law of the People’s Republic of China Decree [1994] No.142 of the State Council 3 Measures for the Implementation of Collection of Individual Income Tax Decree [1999] No.272 of the State Council 4 Law of the People’s Republic of China Concerning the Administration of Tax Collection   5 Circular of the State Administration of Taxation on the Questions Concerning the Taxation of Profits from the Transfer of Stocks (Stock Rights) and Dividend Income of Enterprises with Foreign Investment, Foreign Enterprises and Individual Foreigners GuoShuiFa [1993] No.45 6 Circular of the Ministry of Finance and the State Administration of Taxation on Some Policy Issues regarding Personal Income Tax CaiShuiZi [1994] No. 020 7 Circular of the State Administration of Taxation on Questions Concerning the Tax […]

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 […]