China Tax Center China Tax & Investment Express

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1 Issue No November 2018 China Tax Center China Tax & Investment Express (CTIE)* brings you the latest tax and business announcements on a weekly basis. CTIE provides a synopsis of each announcement including a link that leads you to the full content of the announcement (in Chinese). Please feel free to contact your EY client service professionals for further assistance if you find the announcements have an impact on your business operations. CTIE does not replace our China Tax & Investment News* which will continue to be prepared and distributed to provide more indepth analyses of tax and business developments in China. *If you wish to access the previous issues of CTIE and China Tax & Investment News, please contact us. Tax circulars Public notice (PN) regarding issues related to the expansion of the application scope of withholding tax deferral treatment on direct reinvestments made by foreign investors (SAT PN [2018] No. 53) On 29 September 2018, the Ministry of Finance (MOF), State Administration of Taxation (SAT), National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) jointly released Caishui [2018] No. 102 ( Circular 102, i.e., Notice regarding expanding the application scope of withholding tax deferral treatment on direct reinvestments made by foreign investors) to further encourage foreign investors in expanding their investments in China. (Please refer to CTIE for details of Circular 102.) To better implement Circular 102, the SAT released SAT PN [2018] No. 53 ( PN 53 ) on 29 October 2018 to clarify certain implementation related issues: According to Circular 102, increase of paid-in capital/capital reserve in the existing investee company by its foreign investor using its attributable/distributable profits is considered a direct equity investment and withholding tax deferral treatment could apply. PN 53 further elaborated on the fact that when a foreign investor uses attributable/distributable profits to fulfill its supplementary contribution commitment already subscribed in an existing investee company, this supplementary contribution shall be deemed as increase of paid-in capital/capital reserve. Thus, the withholding tax deferral treatment shall be applied provided that all the other criteria are also met. 1

2 In addition, according to PN 53, where a foreign investor receives its attributable/distributable profits through its special RMB deposit account (for reinvestment purpose) and transfers the profits to the investee company s or equity transferor s (in a share acquisition case) accounts on the same day, these transactions shall meet the criteria of direct transfer of cash to the Chinese investee companies or equity transferors accounts as prescribed in Circular 102. In this respect, the foreign investor transfers profits received through the afore-mentioned process would be qualified for withholding tax deferral treatment provided that all the other criteria are also met. PN 53 also specifies detailed procedures and documentation requirements in this regard. PN 53 took retroactive effect on 1 January Caishui [2017] No. 88 ( Circular 88, i.e., Notice regarding the withholding tax deferral policy related to profits distributed to foreign investors) and SAT PN [2018] No. 3 ( PN 3, i.e., PN regarding issues related to the implementation of policies on withholding tax deferral treatment on direct reinvestment made by foreign investors) shall be abolished at the same time. Foreign investors income from equity investments (e.g., dividends and bonus dividends) received on or after 1 January 2018 are eligible to the benefit under Circular 102 and PN 53. For reinvestments made by foreign investors in the period from 1 January 2017 to 31 December 2017, Circular 88 and PN 3 shall apply. We will issue further article to discuss PN 53 and Circular 102 in detail, please stay tuned. You can click this link to access the full content of PN 53: You can click this link to access the full content of the Interpretation of PN 53 from the SAT: You can click this link to access the full content of Circular 102: ml You can click this link to access the full content of Circular 88: You can click this link to access the full content of PN 3: The State Council s executive meeting on 21 November 2018 calling for extending and improving the import retail policy for cross-border e-commerce and expanding the application scope At the State Council s executive meeting on 21 November 2018 (hereinafter referred to as the Executive Meeting ), the State Council decided to further continue and improve the import policy for cross-border e- commerce retail businesses and expand the scale to stimulate consumption, as well as to encourage the construction of logistic hubs. In particular, to improve the import policy for cross-border e-commerce retail businesses, the following measures were proposed during the executive meeting: The current monitoring policies for cross-border e-commerce retail businesses shall be extended from 1 January Import commodities under cross-border e-commerce retail businesses shall be considered as self-use articles and shall not be subject to licensing of importation, registration or any record filing requirements. The new supervision mode for cross-border e-commerce retail businesses that are currently undertaken in 15 cities (Hangzhou, Tianjin, Shanghai, Chongqing, Hefei, Zhengzhou, Guangzhou, Chengdu, Dalian, Ningbo, Qingdao, Shenzhen, Suzhou, Fuzhou, Pingtan) on a pilot basis shall be further extended to 22 newly set up cross-border e-commerce integrated zones, including Beijing, Shenyang, Nanjing, Wuhan, Xi an, and Xiamen, etc. (Please refer to Guohan [2018] No. 93 ( Circular 93, i.e., Reply on the establishment of 22 cross-border e-commerce integrated zone for details). 2

3 Importation of commodities within the list of cross-border e-commerce retail import commodities for personal use, with a threshold of RMB2,000 per transaction and RMB20,000 per person per year, are applicable to zero Customs Duty, and a reduced import Value-added Tax (VAT)/Consumption Tax on 70% of the statutory tax payables. According to the Executive Meeting, the scope of the list shall be further expanded to include an additional 63 items of commodities and the threshold shall be increased to RMB5,000 per transaction and RMB26,000 per person per year. The relevant government authorities shall further explore on improving the export tax refund policies to support export businesses of cross-border e-commerce by referencing to the international practices. The relevant government authorities shall reinforce the risk management and supervision on cross-border e-commerce enterprises, the relevant platform, payment and logistics services companies. It is anticipated that the relevant government authorities shall further stipulate and release implementation rules to respond to the Executive Meeting. Please stay tuned for further updates in this regard. You can click this link to access the official news regarding the Executive Meeting: You can click this link to access the full content of Circular 93: Notice regarding Corporate Income Tax (CIT) and VAT policies on foreign institutions investing in domestic bond market (Caishui [2018] No. 108) To further promote the opening-up of China s domestic bond market, the MOF and SAT jointly released Caishui [2018] No. 108 ( Circular 108 ) on 7 November 2018 to grant tax incentives for foreign institutions investing in domestic bond market. According to Circular 108, effective from 7 November 2018 to 6 November 2021, interest income of foreign institutions deriving from investments in domestic bond market shall be exempt from CIT and VAT. Notwithstanding the above, it should be noted that the CIT exemption shall not apply to interest income that is attributable to the establishment or sites established by those foreign institutions within the territory of the People s Republic of China. You can click this link to access the full content of Circular 108: Business circulars Notice regarding certain measures on supporting deepened reform and innovation in Pilot Free Trade Zones (Guofa [2018] No. 38) PN regarding certain opinions on supporting the construction of the China (Hainan) Pilot Free Trade Zone (Guoshijianzhu [2018] No. 219) In order to support the deepened reform and innovation in Pilot Free Trade Zones ( PFTZs ) and further improve the quality, the State Council released Guofa [2018] No. 38 ( Circular 38, i.e., Notice regarding certain measures on supporting deepened reform and innovation in Pilot Free Trade Zones) on 7 November Main measures are as follows: Create a good investment environment Learn from the experience of Beijing s expanding the opening-up of the service industry as the comprehensive pilot, relax the proportion of foreign technical personnel in foreign-invested construction and design enterprises, and relax the restrictions on talent intermediaries. 3

4 Delegate the approval authority of construction projects and safety production licenses for construction enterprises to PFTZs. Delegate the provincial and lower-level approval authority for the establishment of foreign-invested construction entities (including design, construction, supervision, testing, cost consultation, etc.) to PFTZs. Provincial-level market supervision departments may delegate the primary approval authority for the registration of the resident representative offices of foreign (region) enterprises to market supervision departments with the administrative authority of the registration of foreign-invested entities in PFTZs. Improve facilitation for trade Support parallel import pilot of automobiles in eligible PFTZs. Grant PFTZs the registration and administration authority for free import and export technology contracts. Support the establishment of international trade platforms and spot trade markets for energy, industrial raw materials and bulk agricultural products, etc. in PFTZs in accordance with laws and regulations. Promote financial innovation to serve real economy Further simplify the administrative approval of insurance branches, establish and improve the information sharing platform for the insurance demand of enterprises in PFTZs. Allow banking financial institutions in PFTZs to handle business such as RMB derivative products for overseas institutions in accordance with relevant regulations on the premise of legal compliance and controllable risks. Support PFTZs to carry out cross-border business of RMB based on an appropriate account system for their own characteristics. Support eligible individuals in PFTZs to conduct overseas securities investments in accordance with regulations. Advance the trials in the field of human resources Enhance flexibility in employment arrangement of enterprises by supporting manufacturing enterprises in PFTZs to sign up contract-based labors, or short-term and fixed-term labor contracts during peak season. Allow labor dispatching staff to engage in temporary R&D positions of enterprises R&D centers. Support PFTZs to carry out pilot labor management and service under non-standard employment arrangement. On 15 November 2018, the State Administration of Market Regulation, National Medical Products Administration and National Intellectual Property Administration jointly issued Guoshijianzhu [2018] No. 219 ( Circular 219, i.e., PN regarding certain opinions on supporting the construction of the China (Hainan) Pilot Free Trade Zone) to support the deepened reform and opening up of Hainan, and high-standard and highquality construction of the PFTZ. Main opinions of Circular 219 are as follows: Promote the registration reform based on self-declaration. Make full use of information technology to support the implementation of electronic business license and the administration of entire electronic registration. Promote interim and post event supervision innovation based on credit constraints. Support sharing the list of abnormal business operation, enterprises with serious illegal acts and other related enterprise information such as directors, supervisors, and senior management personnel of other provinces and cities to the entry and exit personnel management information system of Hainan and impose credit constraints on them. 4

5 Promote a fair, orderly and safe market environment. Support Hainan PFTZ to strengthen the implementation of competition policies, cooperate with anti-monopoly review, and explore to establish an institutional mechanism to maintain the fair competition in Hainan PFTZ. Support promoting and improving the protection and application system for intellectual property. Support Hainan PFTZ to explore the development of intellectual property capitalization, securitization and financial innovation. You can click this link to access the full content of Circular 38: You can click this link to access the full content of Circular 219: Other tax and customs related circulars recently announced by central government authorities: Notice regarding implementation of certain measures on further supporting and serving the development of private economy (Shuizongfa [2018] No. 174) Notice regarding a list of 367 national technology business incubators eligible for preferential tax treatments for year 2017 (Guokefahuo [2018] No. 147) PN regarding fully expanding the reform on printing the tax payment demand notes issued by Customs (GAC PN [2018] No. 169) PN regarding matters related to the adjustment of carrier manifest between China and Mongolia (GAC PN [2018] No. 170) PN regarding the postpone of the effective date of GAC PN [2018] No. 127 and GAC PN [2018] No. 135 (GAC PN [2018] No. 171) PN regarding reducing the time frame for the approval of health licenses at frontier ports (GAC PN [2018] No. 173) 5

6 Contact us For more information, please contact your usual EY contact or one of the following of EY s China tax leaders. Office Tax Leaders Martin Ngai (Beijing) martin.ngai@cn.ey.com Fisher Tian (Tianjin) fisher.tian@cn.ey.com Samuel Yan (Dalian/Shenyang) samuel.yan@cn.ey.com Lucy Wang (Qingdao) lucy-c.wang@cn.ey.com Joanne Su (Xi an) joanne.su@cn.ey.com Vickie Tan (Shanghai) vickie.tan@cn.ey.com Raymond Zhu (Wuhan) raymond.zhu@cn.ey.com Audrie Xia (Suzhou) audrie.xia@cn.ey.com Andrew Chen (Nanjing) andrew-jp.chen@cn.ey.com Patricia Xia (Hangzhou) patricia.xia@cn.ey.com Chuan Shi (Chengdu) chuan.shi@cn.ey.com Clement Yuen (Shenzhen) clement.yuen@cn.ey.com Rio Chan (Guangzhou/Changsha) rio.chan@cn.ey.com Jean Li (Xiamen) jean-n.li@cn.ey.com David Chan (Hong Kong) david.chan@hk.ey.com Heidi Liu (Taipei) heidi.liu@tw.ey.com Service Line Tax Leaders Andrew Choy (International Tax) andrew.choy@cn.ey.com Paul Wen (People Advisory Services) paul.wen@hk.ey.com Kenneth Leung (Indirect Tax) kenneth.leung@cn.ey.com Travis Qiu (Transfer Pricing) travis.qiu@cn.ey.com Becky Lai (Tax Policy) becky.lai@hk.ey.com Jesse Lv (Transaction Tax) Jesse.lv@cn.ey.com Samuel Yan (Global Compliance & Reporting) samuel.yan@cn.ey.com Sector Leaders Catherine Li (Financial Services) catherine.li@cn.ey.com Alan Lan (Energy & Resources) alan.lan@cn.ey.com Martin Ngai (Technology, Media, Telecommunications) martin.ngai@cn.ey.com Vickie Tan (Life Science) vickie.tan@cn.ey.com Gary Chan (Real Estate) gary.chan@cn.ey.com Audrie Xia (Consumer Products) audrie.xia@cn.ey.com Walter Tong (Automotive & Transportation) walter.tong@cn.ey.com Raymond Zhu (Government & Public Sector) raymond.zhu@cn.ey.com Greater China Tax Leader Henry Chan henry.chan@cn.ey.com Author China Tax Center Jane Hui jane.hui@hk.ey.com 6

7 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young, China All Rights Reserved. APAC no ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/china Follow us on WeChat Scan the QR code and stay up to date with the latest EY news. 7