General Introduction of PFTZ On 27 September 2013, the State Council published the General Plan for China (Shanghai) Pilot Free Trade Zone (the Plan) on its official website by releasing Guofa [2013] No. 381. The Plan sets out the guiding principles with respect to the general requirements, major tasks and measures, supervisory mechanism, tax policies and further opening up of the service sector in ( PFTZ ). Before the establishment of PFTZ, Shanghai has already opened a number of customs supervisory zones carrying certain characteristics of a FTZ, such as bonded zone, bonded logistics park, bonded port and export processing zone, etc. Geographical location of the PFTZ, which covers around 28.78 square kilometers geographical area (1/226 of total geographic area of Shanghai), would have the following four customs supervisory zones located in Pudong: 1. Shanghai Waigaoqiao Bonded Zone; 2. Shanghai Waigaoqiao Bonded Logistics Park; 3. Yangshan Bonded Port; and 4. Shanghai Pudong Airport Comprehensive Bonded Zone. Purpose of PFTZ The Plan clarifies tasks and measures from the administration, investment, trade, finance and legal perspectives, as well as customs supervisory mechanism and tax policies to be implemented in the PFTZ. China does not allow free capital flow which constitutes a hurdle on free trade in view of the interaction between trade and finance. Numerous MNCs HQ are attracted to Shanghai due to government support policies and facilities; but do not place key capital operations there, because of restrictions on cross border capital flow. Real free trade must be compatible with the financial system. In this regard, the Plan indicates that an independent foreign exchange system will be introduced in the PFTZ to facilitate more trade and investments. Additionally, cross border financing and fund management are encouraged.
Purpose of PFTZ Finance and foreign exchange administration include: Permitting qualified foreign investors to freely transfer investment gains out of China Piloting Renminbi (RMB) capital items to be convertible Piloting cross-border RMB usage Piloting market-determined financial interest rates Supporting cross-border RMB re -insurance business Encouraging MNC to establish global/area fund management center Allowing qualifying private capital and foreign financial institutions to do business in financial service sector Permitting overseas entities to participate in commodity futures trading in the PFTZ Favorable tax policies Promoting investment installment plan available for income taxes Installment plan available for income taxes related to asset appreciation: CIT IIT Installment plan available for income taxes related to stock incentives: IIT In an asset restructuring transaction, for the appreciation of non-cash assets used as investments, the related enterprise/ individual shareholders may be allowed to pay related income taxes by installments through a period of up to five years. High-end talents and talents in short of supply, who receive stock options in the form of share stock or capital contribution from enterprises in the PFTZ, may be allowed to pay related IIT by installments. Promoting trade export tax refund, import-level Value -Added Tax (VAT) Finance lease Export tax refund Finance lease Import-level VAT Qualifying imported machineries and equipments Customs duty/ Import- level VAT/import-level consumption Tax (CT) exemptions Project subsidiaries established in the PFTZ by finance/financial leasing enterprises incorporated in the PFTZ (Project Subsidiaries) will be eligible to enjoy the pilot export tax refund policy granted to finance lease businesses. Aircraft with a loading capacity of 25 tons or above purchased by Project Subsidiaries from overseas and leased to domestic airlines can be exempted from import-level VAT Machinery and equipment imported by manufacturing enterprises (or service enterprises with manufacturing functions) located in the PFTZ may be exempted from Customs duty/import-level VAT/import-level Consumption Tax.
Further opening up investment industries The Plan highlights further opening up of investment industries that cover six sectors including finance, shipping, commercial, professional, as well as cultural and social services. Details of part of this policy are listed below. Industries Type of services Details of opening up aspects
Relaxed customs supervision To expedite the import process of goods entering into the PFTZ, unlike the prevailing policy of entering after custom declaration applied in current custom bonded zones, according to the Plan, the imported goods will be allowed to enter into PFTZ prior to getting customs declared. Relevant procedures for importation and exportation of goods related to international transit shipment and freight de-consolidation are streamlined accordingly. Although subject to certain conditions, the PFTZ would permit a trading platform for designated areas, which means a direct trading manner on bonded goods would be possible within the PFTZ. ü The imported goods will be allowed to enter into PFTZ prior to getting customs declared; ü Subject to certain conditions, a direct trading manner on bonded goods would be possible within the PFTZ. Simplified investment administrations Compared to Negative List Yes No Approval by the Government Fill in Application Online WFOE Setup Procedure Receive the Documents WFOE Setup for the Record Business License Application Organization Code Certificate Application Submit Information to the Government Tax License Application
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