- Work-related Injury Insurance Contribution Rate Adjustment in China
- Social Insurance Contribution Reduced in China
Foreign invested enterprises (FIEs) often face the challenge of translating corporate compliance policies into local practices in China. Recent research by SBA Stone Forest shows that two thirds of local management of FIEs in China consider it very difficult to explain the gap between corporate compliance requirements and local practices in China to their headquarters. Some local management view it as a potential business and compliance risk in China.
- Different legal systems between China and country where FIE is headquartered
- Difference between Chinese national laws and local rules and practices
- Difference in legal effect of certain terms
- Different implementation rules for same regulation by same authority in different parts of China
- Advisory on local government regulations and industry-specific policies
- Structuring of business ventures
- Deal structuring
- Capital structuring
- Corporate structuring
- Routine operational contract and agreement compliance advisory
- Assessment of company’s or other entities’ compliance risks in China
- Participation in important meetings, negotiations with reasonable advance notice
- Implementation advisory for business transactions, plans, and decisions
- Routine ad hoc general compliance advisory to management team
- Project management advisory for significant business decisions, plans, and transactions
On 23 March 2016, China’s Ministry of Finance (MOF) and State Administration of Taxation (SAT) jointly issued Circular Caishui  36 (Circular 36). Circular 36 contains the Value Added Tax (VAT) rates and rules applicable to the extension of China’s VAT system to several key sectors such as real estate and construction, financial services and lifestyle services, and these will take effect from 1 May 2016.
The respective VAT rates applicable to each of these sectors are shown below:
|Sector||New VAT Rate||Current Business Tax Rate|
|Financial Services & Insurance||6%||5%|
|Lifestyle Services (F&B, hospitality & other services)||6%||Generally 5%, though certain entertainment services are subject to rates ranging from 3–20%|
The government also announced an extension of the due date for all industries to file the first VAT return from 15 to 25 June 2016 to allow taxpayers more time to adjust to the new VAT system. It is mandatory for businesses to be fully compliant with the new VAT system by this date. The tax authority will provide taxpayers with assistance in this area in the form of training and advisory as well as green channels in local tax bureau offices.
From now until 25 June 2016 (latest), businesses should take actions to fully prepare for implementation of the new system such as establishing controls over VAT invoicing, implementing internal processes for managing VAT risks, and conducting staff training in the areas of finance, operations, tax, legal and IT. Several rounds of refinement or amendment to the rules are expected.
The PRC State Council issued its Decision on the Integration of Sanitary and Food Operation Licences in February 2016 to eliminate the need for a Sanitary Licence (the “Decision”).
Before the Decision was issued, restaurants, cafes, bars and teahouses were required to obtain both the Sanitary Licence issued by Department of Health and the Food Operation Licence issued by China Food and Drug Administration. With the Decision in effect since 3 February 2016, the Sanitary Licence has been integrated into the Food Operation Licence and is no longer required. This has made the process of setting up an F&B company easier and faster.
The PRC Charity Law was promulgated on 16 March 2016 and shall come into force as of 1 September 2016 (the “Charity Law”).
According to the Charity Law, charity organisations that qualify for public fundraising shall regularly disclose the information on fundraising and implementation of charity projects to the public.
It also designates September 5 of each year as China Charity Day.
To further reduce the burden of work-related injury insurance premiums on employers, the Chinese government announced new industrial benchmark premium rates and related legislative adjustments for work-related injury insurance that took effect from 1 April 2016. These changes are explained below.
The Chinese government noted the nation’s high pension contribution capacity during the Central Economic Work Conference. It also said that it would study ways to lower the social insurance contribution and reduce the cost burden on businesses. Certain areas in China, such as Shanghai, Guangdong, Tianjin, Yunnan, Gansu, Hangzhou and Xiamen, have already started to reduce their respective social insurance rates.
With effect from 1 April 2016, Shanghai has reduced local pension, medical and unemployment insurance contribution rates for employers as shown below:
|Old Policy Rates in 2015||New Policy Rates in 2016|
|Work Injury (%)||0.5||0||0.5||0|
In Guangdong, the unemployment insurance contribution rate for employers has decreased from 2% to 1% with effect from 1 March 2016.
Announced in early February 2016, the unemployment insurance contribution rate for employers has been reduced from 2% to 1% in Tianjin, while the local maternity insurance contribution rate has fallen from 0.8% to 0.5%. The minimum and maximum local work injury insurance contribution rates were lowered from 0.5% to 0.2% and from 2% to 1.9% respectively.
Other Chinese cities are expected to announce adjustments to their respective local insurance contribution rates later this year.
Serving growing businesses since 1985, RSM in Singapore is the largest accounting, business advisory and solutions group outside the Big 4, with a total staff strength of over 950 in Singapore and 320 in China.
Our China Practice is dedicated to helping you venture into China smoothly and supporting you in navigating its complex regulatory and business environment.
As a member of RSM International, the world’s 6th largest accounting and consulting network, we also have a global reach of over 800 offices in 120 countries.
Adrian Tan, Partner and Industry Leader, China Practice
T +65 6594 7876
Donald Ho, Partner
T +65 6705 7148
Tan Lee Lee (Ms), Director
T +86 21 6186 7602
Yeo Lee Soon, Director
T +86 10 8591 1900