The Chinese government announced a new filing system for foreign investments that has been in effect since 1 October 2016.
Effects of new filing system on Wholly Foreign Owned Enterprises (“WFOEs”):
- For incorporation or restructuring of WFOEs that do not fall under the Negative List (list of industries where foreign investments are prohibited or restricted, or where they are encouraged but must meet special equity requirements), a Certificate of Approval by the Commission of Commerce (“COC”) is not required. If any restructuring causes an existing WFOE to no longer fall under the Negative List, the WFOE only needs to file all required details of the change with the COC rather than apply for a new Certificate of Approval. Once all the required details have been filed, the original Certificate of Approval will be rendered void.
- Approval by the COC is not a prerequisite for company and foreign exchange registrations of WFOEs that do not fall under the Negative List. Instead, such foreign investors are only required to file certain information with the COC before issuance of the business licence or within 30 days thereafter.
- The number of documents that must be filed with the COC has been reduced significantly, and these can be submitted online as well, greatly reducing the filing time. Foreign investors are no longer required to submit documents such as the Feasibility Report, Articles of Association, and List of Board Members.
However, the previous application and approval system remains applicable to WFOEs that fall under the Negative List, with the COC’s approval still a prerequisite for company and foreign exchange registrations.
On 6 January 2017, the Ministry of Finance and State Administration of Taxation announced VAT policies for asset management products. The announcement stated that managers of financial products would be deemed liable to VAT if the tax is payable for operation of the product with effect from 1 July 2017.
For any VAT incurred on the operation of financial products on or after 1 July 2017, the manager of the financial product should apply for filing of VAT returns according to prevailing tax regulations.
However, the taxpayer shall be exempt from paying any VAT incurred on the operation of financial products before 1 July 2017. If payments were already made for such VAT incurred before this date, they may be used to offset such VAT payable on or after this date.
The State Administration of Taxation is expected to announce further details on the collection of VAT on the operation of financial products.
The State Administration of Foreign Exchange announced several reforms to foreign exchange administration.
- Extend scope of foreign exchange settlement in terms of domestic loans in foreign currency;
- Allow transfer of funds with onshore guarantee for domestic use of offshore loans;
- Further facilitate centralised management of foreign exchange;
- Allow a foreign institution in a free trade zone to use a domestic foreign exchange account for foreign exchange settlement;
- Further regulate foreign exchange administration for trade in goods;
- Improve visibility over foreign exchange incomes deposited in current accounts overseas;
- Improve visibility over profits remitted in foreign currencies;
- Strengthen assessments of foreign direct investments for authenticity and compliance; and
- Improve administration of overseas loans in both RMB and foreign currencies
China recently signed separate reciprocal social security agreements with Canada and Finland that cover expatriates from a signatory country working in the other signatory country. Key details of the agreements are shown in the table below.
|Key details||Agreement between China and Canada||Agreement between China and Finland|
|Effective date||1 January 2017||1 February 2017|
|Scope of reciprocal exemption from payment of social insurance premiums||Pension||Pension and unemployment insurance|
|Beneficiary||Dispatched personnel, self-employed personnel, employees on vessels and aircraft, governmental employees, and others entitled to exemption of social insurance premiums||Dispatched personnel, self-employed personnel, employees on vessels and aircraft, governmental employees, and others entitled to exemption of social insurance premiums|
|Duration of exemption from payment of social insurance premiums||72 months, after which approval for continued exemption must be obtained from both Chinese and Canadian authorities||5 years, after which approval for continued exemption must be obtained from both Chinese and Finnish authorities|
If expatriate employees from a signatory country who work in another signatory country are unable to provide official proof of their social security contributions in their home country, they would be required to join the foreign country’s compulsory social security scheme.
If such proof is provided, they would only be exempt from paying social insurance premiums covered by their country’s social security agreement with the other signatory country. They would still need to pay other types of social insurance premiums under the other signatory country’s compulsory social security scheme.
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Adrian Tan, Partner and Industry Leader, China Practice
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Chan Weng Keen, Partner
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Tan Lee Lee (Ms), Director
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Yeo Lee Soon, Director
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