New Measures on Administration of Special Funds for the Development of Small and Medium-sized Enterprises
On May 25th, 2012, the Ministry of Finance (“MOF”) and the Ministry of Industry and Information Technology (“MIIT”) of the People's Republic of China (“PRC”) jointly issued the Measures on Administration of Special Funds for Development of Small and Medium-sized Enterprises (hereinafter referred to as the “New Measures”) which shall enter into force as of the date of its promulgation. The Interim Measures on Administration of Special Funds for Development of Small and Medium-sized Enterprises (hereinafter referred to as “Interim Measures”) that was issued in 2008 shall be simultaneously annulled.
By comparison with the Interim Measures, the key points of the New Measures are as follows:
1. A New Category of Enterprises
There were only two categories of Small and Medium-sized Enterprises (“SMEs”) in the Interim Measures, one of which is the category of small enterprises and the other is the category of medium sized enterprises. In the New Measures, a new category of ´micro-enterprises´ is included.
2. Key Industries
Major support will be granted to productive service industries, such as high-tech service industry, commercial service industry and modern logistics industry, in order to strengthen and improve the services for SMEs in entrepreneurship, innovation, quality, management consulting, information service, personnel training, market expansion and so on.
3. Application and Management of Special Funds
´Special Funds for Development of SMEs´ should be managed under the budget of the central government as allocated to SMEs (especially to micro-enterprises) for technological changes, structural adjustment, transformation of development patterns, increase of employment, improvement of service environment and so on.
MOF and MIIT emphasized that the application and management of special funds should be in accordance with the national macro-economic policies, as well as with the preferential policies for China’s central and western regions.
Furthermore, the allocation of special funds will be factor-based rather than item-based according to the New Measures.
4. Methods and Limits of Funding
Special funds will take two modalities of financial support and discount loans of which a SME can only choose one. A SME can only apply for one project in the same year. Besides, special funds are not applicable if the project has obtained financial support from central government otherwise.
Special funds for each project through financial support or discount loans should be, in general, no more than 2 million RMB. The limit of special funds through discount loans will be determined according to the loan limit and lending rate for the same period announced by the People’s Bank of China. Special funds for projects that focus on the improvement of service environment for SMEs, especially micro-enterprises, should normally be no more than 4 million RMB.
General Comment:
The New Measures clarified certain issues relevant for the management and utilization of special funds for the development of SMEs and provided preferential treatment to micro-enterprises and SMEs in China’s central and western regions. The New Measures also show the Chinese government’s determination to promote the productive service industries and enhance the competitiveness of SMEs.
Notice on Individual Income Tax on the Work-related Injury Insurance
The State Administration of Taxation has issued the Notice regarding the Policy of the Individual Income Tax on the Work-related Injury Insurance Treatment (the “Notice”) on May 3rd, 2012, which has retroactively become effective as of January 1st, 2011.
According to the Notice, the work-related injury insurance, which is obtained by the injured employee or his/her relatives according to the ´Regulations of the Work-related Injury Insurance´, is exempted from the individual income tax.
The above-mentioned work-related injury insurance, according to the Regulations of the Work-related Injury Insurance, includes the one-off pension, disability allowance, one-off work-related injury medical pension, one-off disability employment pension, work-related medical treatment, hospital food subsidy, out-of-town medical transportation and accommodation expenses, work-related recovery expenses and nursery expenses obtained by the injury employee, as well as the funeral pension, dependent relative pension and one-off work-related death pension obtained by the employee’s relatives due to the employee’s work-related death.
Due to the fact that the Notice has become retroactively effective as of January 1st, 2011, if the employee or his/her relatives have already paid the individual income tax of the work-related injury insurance, they can apply for the refund of the individual income tax at the competent tax authority.
Notice on the Matters regarding Double Taxation in Mainland China for Hong Kong (and Macao) Tax Resident Employees
The State Administration of Taxation (“SAT”) .of the People's Republic of China (“PRC”) issued Notice on the Matters regarding Individual Income Tax with respect to the Implementation of the Tax Arrangements between the Mainland China and Hong Kong (and Macao) (hereinafter referred to as the "Notice") on April 26th, 2012, which addresses the double taxation problems in favor of the Hong Kong (and Macao) tax residents. The Notice takes effect from June 1st, 2012 (“Effective Date”) and applies to the income obtained after the Effective Date.
The key points of the Notice are as follows:
1. Scope of Application
The Notice is only applicable to those Hong Kong (and Macao) tax residents who are employed by a Hong Kong (or Macao) company or who are concurrently employed by both a Hong Kong (or Macao) company and a Mainland China company. In other words, if a Hong Kong (or Macao) tax resident employee is employed by a Mainland China company and works full time in Mainland China, this Notice should not be applicable.
2. Methods of Calculation
In order to eliminate double taxation in Mainland China for Hong Kong (and Macao) tax resident employees, the SAT now accepts the time apportionment of the salary and bonus income on the “physical presence” basis. In other words, only the days on which the individual is physically present in Mainland China is to be counted when applying the prescribed time apportionment formulae used to calculate the Individual Income Tax (“IIT”) liability in Mainland China.
a. If a Hong Kong (or Macao) tax resident stays in Mainland China for no more than 183 days in any 12-month period, the following formula is applied:
IIT Payable = IIT on Total Income for the Period Concerned × (Number of Physical Presence Days in Mainland China for the Period Concerned ÷ Number of Calendar Days for the Period Concerned) × (Income Paid/Borne in Mainland China for the Period Concerned ÷ Total Income for the Period Concerned)
b. If a Hong Kong (or Macao) tax resident stays in Mainland China for more than 183 days in any 12-month period, the following formula is applied:
IIT payable = IIT on Total Income for the Period Concerned × (Number of Physical Presence Days in Mainland China for the Period Concerned ÷ Number of Calendar Days for the Period Concerned)
“The Period Concerned” in the above formulae refers to the periods over which the relevant salaries and wages, bonuses and similar payments are taxable for PRC tax purposes. The Notice also provides that in calculating the number of physical presence days, the day of arrival, the day of departure and the same day travel will be counted as half a day in Mainland China.
3. Record Filing
The Hong Kong (and Macau) residents bear the responsibility to report and file with the competent tax authorities when paying IIT according to the Notice.
Many Hong Kong (and Macao) tax residents currently suffer double taxation since their work requires extensive travel in Mainland China, that is, the same amount of income may be taxed both in Mainland China as well as in Hong Kong (or Macao) respectively.
The Notice attempts to minimize the impact of such double taxation by clarifying the calculation of IIT under such circumstance. Therefore, it brings great news to many Hong Kong and Macao tax resident employees working cross border in China and their employers.
Clarification on the Implementation of the Enterprise Income Tax Preferential Policies for China's Western Region
The State Administration of Taxation (“SAT”) issued Notice on the Matters regarding Enterprise Income Tax under the Development Strategy for Western Region (hereinafter referred to as “Notice”) which provided certain important clarifications for the implementation of Enterprise Income Tax (“EIT”) preferential policies and set out the relevant applications and approval procedures. The Notice takes retrospective effect from January 1st 2011.
Main Points
1. Scope of Application
The Notice is applicable to the enterprises located in the Western Region. Furthermore, if an enterprise’s branch is located in the West Region but the enterprise’s head office itself is not located in the West Region, the Notice is applicable to the branch but is not applicable to the head office.
2. 15% Reduced EIT
Enterprises in the Western Region can apply for the 15% reduced EIT to the competent tax authorities provided that they fall within the Catalogue of Encouraged Industries in the Western Region (“the Catalogue for the Western Region”) and their aggregate revenue from these projects exceeds 70% of the total revenue.
3. The Catalogue for the Western Region
In fact, the catalogue for the Western Region has not yet been released by the relevant Chinese authorities so far. The Notice clarifies that enterprise may temporarily file the application for the 15% reduced EIT to the competent tax authorities provided that they fall within the encouraged industries under the following four "old" Catalogues:
· The Catalogue for the Guidance of Industrial Structure Adjustment (2005 Version);
· The Catalogue for the Guidance of Industrial Structure Adjustment (2011 Version);
· The Catalogue for the Guidance of Foreign Investment Industries (2007 Version); and
· The Catalogue of Competitive Industries in Central and Western Regions for Foreign Investment (2008 Version).
4. Both Incentives
Enterprises in the Western Region may enjoy both the 15% reduced EIT under the Notice and the half reduction of EIT during tax holiday period under EIT law. Therefore, enterprises may apply for the reduced CIT rate of 7.5% in this case.
Conclusion
The clarification in Notice once again indicates the Chinese government’s determination to boost the economy in the Western Region during the State’s 12th Five-year Plan.
Taxpayers in the Western Region are encouraged to observe and study the clarification provided in the Notice to plan and structure their investment. In addition, they should also stay tuned on the future policy developments in the region, particularly the release of the Catalogue for the Western Region.
Tax Transformation from Business Tax to Value-Added Tax in China
The State Administration of Taxation has issued the Provisional Measures of Applying the Exempt, Credit and Refund Method to Zero-rated Value-added Tax Services in Their Transformation from Business Tax to Value-added Tax under the Pilot Program (the “Provisional Measures”) on April 5th, 2012, which has retrospectively become into effective since January 1st, 2012.
The main contents of the Provisional Measures are as follows:
1. The exempt, credit and refund method (the “ECR”) means when the zero-rated VAT services is provided, the Services Provider will be exempted from VAT, the relevant input VAT will credit the payable VAT, and the rest of the input VAT will be refunded.
2. In the pilot area, the legal entity and individual who provide the zero-rated value-added tax (the “VAT”) services and who are deemed to be general taxpayers (the “Services Provider”), are applied the zero-rated VAT and the exempt, credit and refund method, but are not allowed to issue the exclusive VAT invoice under the pilot program.
3. Scope of the Zero-rated VAT Services
a. International Transportation Service, including:
-- Transportation of travelers or goods from inside to outside China;
-- Transportation of travelers or goods from outside to inside China;
-- Transportation of travelers or goods outside China.
However, the transportation of travelers or goods from inside China to the special areas and places supervised by China customs, the transportation of travelers or goods from the special areas and places supervised by China customs to other areas and places inside China, and the transportation of travelers or goods in the special areas and places supervised by China customs are excluded from the scope of the zero-rated VAT service.
b. Provision of the Research and Development Service or Design Service to an abroad entity
The provision of the research and development service or design service to the special areas and places supervised by China customs is excluded from the scope of the zero-rated VAT service.
4. Before the Service Provider apply and file for the ECR of the zero-rated VAT services, it should apply for the identification of the export refund or exemption in the competent tax authority.
The Provisional Measures has been issued in order to interact and ensure that the pilot program of the transformation from business tax to VAT can be successfully preceded. The tax transformation from business tax to VAT now is only piloted in Shanghai and we believe it will be extended to more cities in the near future.
Adjustment of the Standard of Social Security Payment
Shanghai Human Resources and Social Security Bureau issued the New Standard of Social Security Payment in Shanghai (the “New Standard”) on March 31st, 2012. The New Standard has come into effect on April 1st, 2012 and will expire on March 31, 2013.
The New Standard increases the payment base (the “Base”), which refers to the number used to calculate the amount of the social security payments, as stated at lostsscard.com.
The new standard regarding the upper limit and the lower limit of the Base are summarized as follows:
1. The Base
The Base of the social security payments should be the actual salary of the employee, however, the upper limit is RMB 12,933 and the lower limit is RMB 2,599. In other words, if an employee’s actual salary is over RMB 12,933, his/her Base of the social security payments should still be RMB 12,933, and if an employee’s actual salary is below RMB 2,599, his/her Base should still be RMB 2,599.
2. The Cost
The cost of the social security payments should be born divided as follows:
Born by the employee: 11% of the Base;
Born by the employer: 37% of the Base.
The amount of the social security payment is a percentage of the Base. Since the Base is increased every year, the social security payment will be increased accordingly.
Jaime Ubilla, Chambers Global Recognition, in Mercurio Legal
"El exitoso trabajo de seis abogados chilenos en el mercado chino"
La última edición del ranking Chambers Global seleccionó a un grupo de especialistas nacionales como Expertos situados en el extranjero para el apartado de China. Repartidos en tres categorías, aquí le contamos quiénes son y cómo llegaron a relacionarse con la región.
Para algunos se trata de un verdadero ejercicio de paciencia, para otros, la tenacidad aparece como requisito indispensable para sobrevivir, sin embargo, todos coinciden en que la única forma de entablar una relación auspiciosa entre abogado-cliente con una empresa china, es mediante el conocimiento de su cultura. Pero, ¿por qué tanto esfuerzo?, porque el país asiático tiene actualmente uno de los mercados más bullentes del mundo y, en los últimos años, sus inversiones en Chile han crecido significativamente, por lo que un conocedor de ambas legislaciones que además lo entienda, se hace indispensable. Esta realidad llevó a seis abogados chilenos a ser reconocidos en China como Expertos situados en el extranjero ("Experts based abroad")por la última versión del Chamber Global, ranking editado por la publicación británica Chambers and Partners y que cada año elige a los mejores estudios y especialistas en más de 180 países. Al respecto, Andrés Jaramillo, Editor de Chambers Latinoamérica, comenta que lo que se quiso hacer este año con la guía global fue reconocer a abogados que están ubicados en una jurisdicción pero tienen una experiencia o conocimiento específico en otros mercados. Son todos especialistas que viven en Chile pero que además de estar y practicar en su país, manejan clientes, saben de la legislación y tienen por tanto un valor agregado en comparación con otros profesionales. "
"La categoría más abultada Corporativo/Fusiones y Adquisiciones convocó a la mayor cantidad de abogados chilenos mencionados en el apartado chino del ranking. Con cuatro de los seis especialistas nacionales ubicados en esta categoría, se trata de una de las áreas más exploradas en la relación legal entre ambos países. "
"Aunque Jaime Ubilla es otro de los abogados seleccionados en esta categoría, su caso difiere del resto por su lugar de residencia: vuelos permanentes entre Santiago y Shanghai. Por esa misma razón, lleva más de una década en Asia, con cuatro años de estudios en Japón, donde realizó un Máster en Derecho en la Universidad de Waseda, y siete de trabajo en China.
Un escenario que encuentra explicación en el estudio del que forma parte como socio: Ubilla & Cía., primera oficina fundada por un abogado latinoamericano en China. Aunque existen dos más en el país asiático, que son de origen brasileño, éstas son sólo oficinas de representación, que no constituyen estudios legales propiamente tal y, por lo tanto, no cuentan con la capacidad para llevar a cabo o asesorar proyectos de inversión en el lugar.
Actualmente pasa bastante tiempo en Chile, asesorando a grupos mineros foráneos, grupos con desarrollos tecnológicos locales que quieren salir al mundo y grupos de inversionistas chinos respecto de proyectos en que nuestra capacidad de innovación ha sido, a nuestro juicio, esencial. A modo de ejemplo puedo mencionar el proyecto de Ciudad Comercial Internacional China, en San Antonio, que fue estructurado tanto legal como financieramente conforme a prácticas y derecho chino, lo que probablemente es la primera vez que sucede en el país, afirma.
Chambers and Partners Global selects Jaime Ubilla as one of the leading lawyers both for the China legal market, and the Chile legal market
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Chinese investors establish a China Business City in Latin America
Chinese investors establish a China Business City in Latin America
Más de sesenta mil hectáreas de almacenamiento, locales de venta, servicios de entretenimiento y una explanada de casi 140 mil m {+2} para recibir autobuses, maquinarias y coches repletos de productos fabricados en China y en América Latina.
Todo eso contempla el proyecto Ciudad Comercial Internacional, que inversionistas chinos y un grupo de chilenos busca desarrollar en la zona de Malvilla, en San Antonio.
La plataforma comercial -una suerte de feria industrial permanente en las cercanías de la Autopista del Sol- tendría casi 350 hectáreas en total, y su objetivo es que en ella se ofrezcan productos de alto valor agregado provenientes de distintas empresas del gigante asiático.
El proyecto contempla una inversión de unos US$ 400 millones, revela Alfredo Nebreda, ex gobernador de San Antonio y quien ha sido nexo en estas tratativas.
"Es una ciudad comercial concebida y diseñada para ser el punto de entrada para los productos de los fabricantes chinos, con destino a América Latina", dicen las bases del proyecto. Chile representa un punto estratégico para China, porque tiene tratados de libre comercio con el 90% del PIB mundial.
Esta semana, los inversionistas chinos involucrados visitaron el país y se reunieron, entre otras autoridades, con el senador Francisco Chahuán. Los inversores representan a dos fondos de inversión: el Hong Kong Lvtong Investment Group y el South America Investment Fund. Meiling Li, una de las accionistas, además es vicepresidenta de la asociación empresarial de Zhejiang.
Parte de los recursos involucrados provendrá de empresas públicas de la provincia de Zhejiang, cuya capital es Hangzhou, una de las ciudades más emprendedoras del gigante asiático. Otra parte del financiamiento será entregada por el gobierno chino, pues el plan cumple con los objetivos de expansión de su plan quinquenal.
"Las metas más relevantes respecto a la forma en que China espera globalizarse, el desarrollo de marca, el desarrollo tecnológico, el acceso a nuevos canales de distribución se cumplen con este proyecto", estima Jaime Ubilla, abogado de UB&CO y accionista del negocio.
Agrega que la idea es que también pequeñas empresas de América que no pueden viajar al país asiático visiten la feria y se provean allí de productos chinos. Además de estos artículos, la plataforma ofrecerá diversos productos del continente americano para el país asiático.
Fuente: El Mercurio - 25 de Marzo de 2012 - Pág. B2
New Edition of Catalogue for the Guidance of Foreign Investment Industries
The Catalogue for the Guidance of Foreign Investment Industries (Amended in 2011) (the “Catalogue”), which shall come into force as of January 30th, 2012 and replace the old version of the Catalogue promulgated on October 31, 2007.
The new Catalogue includes 473 items in total - 354 encouraged items, 80 restricted items and 39 prohibited items.
The major amendments to the content of the new Catalogue are as follows:
a. The opening-up has been further expanded.
In addition to 3 new encouraged items, 7 original restricted items and 1 original prohibited item are cancelled. Meanwhile, restrictions over the proportion of foreign equity in certain areas are cancelled.
b. Promote the Reform and Upgrade Manufacturing Industry
High-end manufacturing industries are designated as key areas in which foreign investments are encouraged. In terms of encouraged items, new products and new technologies in textile, chemical and mechanism manufacturing industries are added while automobile manufacturing industry is cancelled. Besides, poly-silicon and coal chemical industries are also cancelled in order to relieve the problems of surplus production capacity and irrational redundant construction in these industries.
c. Develop Strategic Emerging Industries
Investments in strategic emerging industries are encouraged, such as energy-conserving and environment-protective industries and new generation of information technology industries. For example, pivotal parts of new-energy automobiles and equipments for the next generation of Internet system based on IPv6 are added to the encouraged items. LCD panel of the encouraged items is specified to be more advanced than 6th generation.
d. Promote the Service Sector
Foreign investment in modern service sectors are encouraged for the purpose of industrial reconstruction. Regarding service sector in the new Catalogue, nine encouraged items are added, including charging station for motor vehicles. Foreign-invested medical institution and financial leasing companies are changed from restricted items to permitted items.
e. Achieve Balanced Development among Different Regions
For the purpose of industrial transfer and regional development, some encouraged items released from the new Catalogue will be taken into consideration during the amendment of Catalogue of Advantaged Industries for Foreign Investment in the Central-Western Region.
Conclusion
The amendments mentioned above revolve closely around the theme of accelerating the economic reform in the direction of China’s economic development, and place great emphasis on improving the foreign investment structure, promoting technological innovation, as well as upgrading industries.