Dear Valued Clients, Business Associates and Friends,

In this issue of China Overview, we are pleased to share with you the following (click on any title below to read more):

Macroeconomic Updates

• China’s 6.9% Q3 GDP Growth Slowest since Global Financial Crisis

• China Eases Foreign Investment Regulations

• China Further Simplifies and Improves Foreign Exchange Administration Policies for Direct Investment

• Combination of Three Registration Certificates into One Document

• Introduction of Two Negative Lists

• China Approves Suzhou Industrial Park Experimental Zone to Promote Innovation


Tax Updates

• New Tax Regime for Offshore Indirect Transfer Transactions

• New Packages of Corporate Income Tax Returns

• Assessment Mechanism to Facilitate Tax Treaty Benefits Claims


HR Update

Measures to Turn Shanghai into Science and Technology Innovation Hub


SBA Stone Forest Insights

Case Study: SBA Stone Forest Helps Foreign Client Achieve Compliance with China’s Financial Reporting Standards


Events

Macroeconomic Updates

China’s 6.9% Q3 GDP Growth Slowest since Global Financial Crisis

China recorded a GDP growth of 6.9% year-on-year in the third quarter of 2015, according to the National Bureau of Statistics (NBS). This was a slowdown from the 7% expansion in the first and second quarters and the slowest growth rate since the global financial crisis.

NBS attributed the slower pace to structural changes in the domestic market and a slowdown in economic growth worldwide.

According to China Daily, the country’s growth was particularly dragged down by real estate investment, which slowed to 2.6% in the first nine months, compared with 12.5% in the same period a year ago.

Source: People’s Daily Online

China Eases Foreign Investment Regulations

China has removed the requirement on foreign investors’ initial investment and minimum registered capital, the Ministry of Commerce (MOFCOM) said.

According to MOFCOM, foreign investors may decide the type, amount and period of investment. The ministry added that such details should be stated in a contract.

In addition, MOFCOM stated that unless required by other laws and regulations, there is no longer a minimum registered capital requirement for foreign investment. Foreign investors were generally required to contribute at least 25% of the registered capital of a joint venture company in China under previous rules.

The move is reportedly part of the country’s ambitious financial reforms to cut red tape for the world’s second-largest economy to be closer with free markets. In March last year, China amended its Company Law to remove the minimum registered capital requirement for setting up companies.

However, some important sectors, such as banking and shipping, still face limitations and foreign investors’ stakes in joint ventures within these industries are capped at below 50%.

Source: Global Times

China Further Simplifies and Improves Foreign Exchange Administration Policies for Direct Investment

In order to strengthen reform of foreign exchange administration of capital accounts, facilitate capital management in enterprises making cross-border investments, and regulate direct investment-related foreign exchange activities, the State Administration of Foreign Exchange (SAFE) has further simplified and improved foreign exchange administration policies for direct investment. The new policies took effect on 1 June 2015.

Highlights:


1. Abolishment of government checks and approval procedures for foreign exchange registration for both domestic and overseas direct investments

• Under the new policy, banks — which should have obtained financial institution identifying codes issued by SAFE and opened the capital account information system at SAFE — will directly handle the direct investment-related foreign exchange registration for foreign investment enterprises coming into China and Chinese investment enterprises overseas.

• Apart from handling direct investment-related foreign exchange registration, banks and their branches shall, under the guidance of SAFE, also be responsible for other relevant activities such as examination, compilation of statistics, monitoring, and record filing.

• Related marketing entities shall request a bank to handle direct investment-related foreign exchange registration before opening bank accounts.

2. Simplification of direct investment-related foreign exchange processes

• Simplification of foreign investors’ capital contribution confirmation and registration process, which is adjusted to book-entry registration. For foreign investors’ monetary contribution, the bank in charge of account opening shall, after receiving the capital funds, handle the book-entry registration via SAFE’s capital account information system. The capital funds may be used only after completion of book-entry registration.

• Abolishment of foreign exchange filing of overseas reinvestments

• Abolishment of annual inspection of direct investment-related foreign exchange, which is replaced by stock equity registration. The marketing entity shall, by itself or through an accounting firm or a bank, submit the data via SAFE’s capital account information system before September 30 each year.

3. Banks shall increase their compliance awareness in handling direct investment-related foreign exchange registration, while SAFE shall strengthen the processes of training, guiding and monitoring banks for compliance.

SAFE’s reformation will facilitate capital management in enterprises making cross-border investments, while banks will undertake more responsibilities in direct investment-related foreign exchange registration.

Combination of Three Registration Certificates into One Document

Since 1 October 2015, China has combined the business licence, organisation code certificate and tax registration certificate into one document for foreign businesses establishing operations in the country.

This means that the industry and commerce, quality supervision, state taxation and local taxation departments now jointly handle registration of the three documents to streamline the registration process. Specifically, a special government department is formed to accept all application materials and information once and share them with all other associated departments for their review within a specified time limit. After receiving the application materials and information, these departments will simultaneously review them based on their division of duties and prepare a joint certificate if the registration is successful. Once notified of the successful registration, the special government department will issue the joint certificate to the applicant. This arrangement allows data of successful registrants to be shared among all associated departments and jointly recognised by them.

Introduction of Two Negative Lists


Market Access Negative List

The PRC General Office of the State Council issued a “Market Access Negative List” on 2 October 2015, which will be effective from 1 December 2015 to 31 December 2017 in certain cities and become a uniform nationwide system from 2018. Both domestic and foreign investors must comply with this list.

Industries in the Market Access Negative List fall under two categories — “Prohibited” and “Restricted”. Businesses are not allowed to invest in “Prohibited” industries, and must seek approvals from the relevant authorities to invest in “Restricted” ones.

Foreign Investment Negative List

The PRC General Office of the State Council issued a “Foreign Investment Negative List” on 8 April 2015 that took effect on 8 May 2015 in four pilot free trade zones in Shanghai, Guangdong, Tianjin and Fujian. The Foreign Investment Negative List sets out 122 special management measures that apply to foreign investments across 50 industries. Foreign investors that engage in activities not on the list will enjoy the same treatment as domestic investors.

Existing legislation governing investment restrictions will be closely integrated with the two negative lists.


China Approves Suzhou Industrial Park Experimental Zone to Promote Innovation


China’s State Council has approved a plan to allow companies to conduct comprehensive R&D experiments in Suzhou Industrial Park (SIP) with the aim of promoting product innovation, making SIP the first such experimental zone in the country.

Under the plan, SIP will focus on developing world-class high-tech products and coordinate economic activities with free trade zones in the country.



Tax Updates

New Tax Regime for Offshore Indirect Transfer Transactions

In February 2015, the State Administration of Taxation (SAT) released Public Notice [2015] No. 7 (“Public Notice 7”), a new tax regime that is different from that under previous Chinese tax laws. Public Notice 7 not only captures offshore indirect equity transfer transactions but also transactions that involve the transfer of immovable property and assets.

Public Notice 7 also provides more explicit and detailed guidance for assessing “reasonable commercial purposes” and introduces “safe harbour” scenarios. However, it also presents challenges to both the foreign transferor and transferee of the offshore indirect transfer as they have to make a self-assessment on whether the transaction should be subject to Corporate Income Tax (CIT) and to file or withhold the CIT accordingly.


New Packages of Corporate Income Tax Returns

The State Administration of Taxation (SAT) has released another two new packages for Corporate Income Tax (CIT) returns that took effect from 1 July 2015 — the provisional CIT returns for Tax Residence Enterprises (TREs) and provisional and annual CIT returns for Non-TREs.

Compared with previous packages for CIT returns, the new packages require taxpayers to disclose more information. In addition, going forward, qualified taxpayers can directly claim and enjoy the relevant CIT incentives during provisional filing, instead of paying tax first in provisional filing and then claiming the tax incentives during the annual filing.



Assessment Mechanism to Facilitate Tax Treaty Benefits Claims

On September 11, the SAT promulgated the Administrative Measures on Non-resident Taxpayers Claiming Tax Treaty Benefits (SAT Public Notice 2015 No.60, PN60), which has been effective since 1 November 2015. The new measures supersede the prevailing Guoshuifa [2009] No.124 (Circular 124).

PN60 introduces a new mechanism of self-assessment on the eligibility for tax treaty benefits (reduced taxation or exemption under the relevant tax treaties) by non-resident taxpayers. The pre-approval process or record-filing acknowledgement from the Chinese tax authorities is no longer necessary. Instead, non-resident taxpayers and their withholding agents will be required to file certain prescribed forms and other supporting documents when performing tax filing to justify their claims for the tax treaty benefits.

HR Update


Measures to Turn Shanghai into Science and Technology Innovation Hub

Since 1 July 2015, the Ministry of Public Security has implemented a series of entry/exit policies and measures designed to support efforts to turn Shanghai into a science and technology innovation hub.

These include “most-favoured” treatment of housing transactions made by all foreigners and greater support for new entrepreneurs. To better attract highly skilled foreign talent, the efficiency of entry/exit services has also been improved through measures such as removal of restrictions on the types of employers and job titles, as well as relaxation of requirements for the duration of residence.

SBA Stone Forest Insights

Case Study: SBA Stone Forest Helps Foreign Client Achieve Compliance with China’s Financial Reporting Standards


A foreign client of SBA Stone Forest (SBASF) had to customise its Oracle ERP system — which records daily transactions on its chart of accounts (COA) under US GAAP — to ensure compliance with China’s financial reporting standards (FRS) when it expanded into the country.

SBA assisted the client through:
• Customisation of its Oracle ERP system to record daily transactions on its COA under China’s FRS
• Discussions on the differences between US GAAP and China’s FRS
• Correspondence with a third party for further development of the solution if necessary
• Training the client’s China-based employees how to use the Oracle ERP system for compliance with China’s FRS
• Parallel run with Kingdee system until customisation of the Oracle ERP system to meet China’s FRS is complete

As some time was needed to complete customisation of the Oracle ERP system for local requirements, SBASF initially deployed the Kingdee system for the client during its initial entry into China. This allowed the client’s Chinese office to fulfil local financial reporting requirements immediately after its establishment.

Once customisation was complete, SBA assisted in migration from the Kingdee system to the Oracle system, allowing the client to ensure compliance with China’s FRS with ease.

Learn more about our accounting services

Events

SBA Stone Forest HR Workshop: Enterprise Human Resource Management for Organisational Structure Change, 7 July

Senior Manager of Payroll & HR Services, Lynn Sun, shared with participants on how to make preliminary arrangements for staff duties, as well as regulatory issues and risks a business may face when the organisation structure changes.

Corporate & Individual Income Taxes Workshop in Shanghai, 27 August

Senior Tax Manager, Rainbow Xie, spoke at this workshop organised by SBA Stone Forest on how to optimise expatriates’ income taxes in China and effective global tax planning in the cross-border context.

2015 Tax Audit Seminar Series in Beijing, Shenzhen and Shanghai, September

Hosted by SBA Stone Forest, a series of Tax Audit seminars was held in September in Beijing, Shenzhen and Shanghai. Scott Jin, Associate Director of Tax Advisory Services, spoke about common tax risks faced and, through actual case studies, shared practical measures on how to manage tax audit challenges in China.

Round-table Discussion in Shanghai: Role of Legal Counsels in Risk Management, Tax and eDiscovery, 18 September

In today’s economic environment, the expectations for in-house legal counsels are higher than ever before. Risk management presents a new opportunity for in-house legal counsels to transform their role — from being traditionally viewed as a legal advisor to being a key member of a company’s management team. SBA Stone Forest and Michael Page co-hosted a round-table discussion in Shanghai that covered the role of legal counsels in risk management, tax and eDiscovery.

China Briefing 2015 – A Bite of China’s F&B Market, 29 October

This year's China Briefing was held at our Singapore office on 29 October 2015 with the theme “A Bite of China’s F&B Market”. Organised by SBA Stone Forest in cooperation with RSM in Singapore, the seminar provided food and beverage (F&B) business owners and leaders with insights on China’s F&B sector, which has seen huge growth and offered significant opportunities for foreign investors over the last 15 years.

Read more

About Us

SBA Stone Forest (SBASF) is a Corporate Advisory and CPA group that has focused on serving foreign enterprises in China since 2001.

We adopt international standards and best practices, while delivering Singapore-quality services. At the same time, we have developed a strong local knowledge and understanding of getting things done faster and more effectively for our clients. Headquartered in Shanghai with branch offices in Beijing, Suzhou, Shenzhen, Chengdu and Hangzhou, we help foreign investors to form legal entities in China smoothly. Thereafter, we continue to support them in navigating China’s regulatory and business environment.

The Corporate Advisory firm is a fully-owned subsidiary of the Stone Forest group, the largest accounting and business advisory group outside the Big 4 in Singapore, established since 1985.

The CPA practice is a partner-owned practice that works seamlessly in strategic alliance with the Corporate Advisory firm to serve common clients in a holistic manner. The CPA practice adopts and provides clients with world-class standards and practices adopted by all major international accounting firms. This is made possible with the technical and training support from the Stone Forest group under a technical assistance and transfer of know-how agreement.

Contact Us

Website: www.SBASF.com

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Shanghai (HQ), China

Tan Lee Lee (Ms.), Director | This email address is being protected from spambots. You need JavaScript enabled to view it.

Tel: +86 21 6186 7602 | Fax: +86 21 6186 7900

Beijing, China

Yeo Lee Soon, Director | This email address is being protected from spambots. You need JavaScript enabled to view it.

Tel: +86 10 8591 1900 | Fax: +86 10 8591 1928

Suzhou, China

Jessica Zhu (Ms.), Branch Manager | This email address is being protected from spambots. You need JavaScript enabled to view it.

Tel: +86 512 6292 0081 | Fax: +86 512 6292 0082

Shenzhen, China

Helen Yin (Ms.), Branch Head | This email address is being protected from spambots. You need JavaScript enabled to view it.

Tel: +86 755 8381 7600 | Fax: +86 755 8381 7900

Chengdu, China

Tan Lee Lee (Ms.), Director | This email address is being protected from spambots. You need JavaScript enabled to view it.

Tel: +86 28 8667 7621 | Fax: +86 28 8665 1262

Hangzhou, China

May Liu (Ms.), Branch Head | This email address is being protected from spambots. You need JavaScript enabled to view it.

Tel: +86 571 8606 7600 | Fax: +86 571 8703 8603