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.
China's National People's Congress Issued New Individual Income Tax Law
China's National People's Congress issued the new Individual Income Tax Law (the "IITL") on June 30, 2011, which will enter into force on September 1, 2011.
The new IITL was modified based on the current IITL (issued on December 29, 2007) and the major changes were made as follows:
1. Taxable Threshold
The minimum amount of the taxable threshold for individual income tax payments by Chinese employees has been increased from RMB 2,000 to RMB 3,500, which means that Chinese employees who earn less than RMB 3,500 per month will not pay individual income tax.
However, the minimum amount of the taxable threshold for individual income tax payments by foreign employees has not been changed. It still remains RMB 4,800.
2. Bracket System of Tax Rates
The corresponding part of the salary amount will be taxed according to the new tax rates stipulated in the new IITL.
Please refer to the form below to compare the tax rates before and after September 1, 2011:
| New Bracket System (Monthly taxable income after deduction of RMB 3,500) |
New Tax Rates (%) after September 1, 2011 |
Old Bracket System (Monthly taxable income after deduction of RMB 2,000) |
Old Tax Rates (%) before September 1, 2011 |
| Not more than RMB 1,500 |
3
|
Not more than RMB 500 |
5
|
| More than RMB 1,500 but not more than RMB 4,500 |
10
|
More than RMB 500 but not more than RMB 2,000 |
10
|
| / |
/
|
More than RMB 2,000 but not more than RMB 5,000 |
15
|
| More than RMB 4,500 but not more than RMB 9,000 |
20
|
More than RMB 5,000 but not more than RMB 20,000 |
20
|
| More than RMB 9,000 but not more than RMB 35,000 |
25
|
More than RMB 20,000 but not more than RMB 40,000 |
25
|
| More than RMB 35,000 but not more than RMB 55,000 |
30
|
More than RMB 40,000 but not more than RMB 60,000 |
30
|
| More than RMB 55,000 but not more than RMB 80,000 |
35
|
More than RMB 60,000 but not more than RMB 80,000 |
35
|
| / |
/
|
More than RMB 80,000 but not more than RMB 100,000 |
40
|
| More than RMB 80,000 |
45
|
More than RMB 100,000 |
45
|
Comments
According to the new IICL, the taxable threshold will be raised to RMB 3,500 and the tax rates will also be changed, which will lead to the following results:
a. The low-income employees (whose monthly salary is below RMB 3,500 per month) will benefit from this new taxable threshold and they will not bear the tax burden.
b. The tax burden on the salary of the employees (whose monthly salary is more than RMB 3,500) will be decreased according to the new taxable threshold and tax rates.
c. Employers (companies) will indirectly benefit from the new IICL and reduce the employment cost.
d. Although the new taxable threshold will not apply to the foreign employees (it will remain RMB 4,800), the new tax rates in new IICL will be applied to the foreign employees, which means that the tax burden on the salary of the foreign employees will also be decreased.
New Detailed Rules Regulating Value-added Tax and Business Tax of China
The new Detailed Rules of the Provisional Regulations on Value-added Tax of the People’s Republic of China (the “VAT Rules”) and the new Detailed Rules of the Provisional Regulations on Business Tax of the People’s Republic of China (the “Business Tax Rules”) were issued by the Ministry of Finance and the State Administration of Taxation on October 28, 2011 and will become effective as of November 1, 2011.
According to the VAT Rules and the Business Tax Rules, the minimum thresholds of the Valued-added Tax (the “VAT”) and the business tax are increased. The specific rules are as follows:
The scope of the increased minimum threshold of VAT:
| Items | Scope of the Minimum Threshold |
| Sales of Goods | Monthly sales amount equals RMB 5,000 to RMB 20,000. |
| Sales of Taxable Services | Monthly sales amount equals RMB 5,000 to RMB 20,000. |
| Transaction-by-Transaction | The sales amount of per transaction or per day equals RMB 300 to RMB 500. |
The scope of the increased minimum threshold of business tax:
| Ways of the Payment | Scope of the Minimum Threshold |
| Periodical Payment | Monthly turnover equals RMB 5,000 to RMB 20,000. |
| Transaction-by-Transaction | The turnover of per transaction or per day equals RMB 300 to RMB 500. |
Conclusion
Compared to the previous regulations in this regard, the minimum thresholds of both VAT and business tax have been increased, which means a reduction of the tax burden over enterprises, especially the “mini” and small enterprises whose tax to be paid will be substantially influenced by the threshold changes. These new rules are regarded as part of structural tax reduction of the taxation reform of China, which aims to further reduce the tax burden of the enterprises and promote their development.
Administrative Measures of Shanghai Municipality on Pharmaceutical Prices (Trial Implementation)
Administrative Measures of Shanghai Municipality on Pharmaceutical Prices (Trial Implementation, the “Measures”) were issued by Shanghai Development and Reform Commission on July 29, 2011. The Measures will be effective as of September 1, 2011.
The main contents of the Measures are as follows:
1.- Scope of Applicaiton
All the pharmaceutical manufacturers, distributors, retailers (including pharmacies) and medical institutions in Shanghai
2.- Forms of Pharmaceutical Price-Fixing
a. Government Fixed-price
Shanghai price administration authorities fix the price of pharmaceuticals which are included in the list of pharmaceuticals selected by National Development and Reform Commission (“NDRC”) and Shanghai price administration authorities. The selling price of pharmaceuticals in this List should be the same as the price fixed by the authorities.
b. Government Guidance Price
NDRC fixes the government guidance price of pharmaceuticals in the range of:
i. Prescription pharmaceuticals which are included in the List of National Basic Medical Insurance;
ii. Pharmaceuticals which are included in the List of National Basic Pharmaceuticals;
iii. Some special pharmaceuticals (including pharmaceuticals of psychotropic, narcotic, immune, fertility, etc.).
Except the pharmaceuticals mentioned above, Shanghai price administration authorities fix the government guidance price (the highest price of retailing price in Shanghai) of pharmaceuticals in the range of:
i. Non-prescription pharmaceuticals (“OTC” - Over The Counter) which is included in the List of National Basic Medical Insurance;
ii. Pharmaceuticals which are included in the List of Shanghai Basic Medical Insurance;
iii. Chinese traditional pharmaceuticals which enjoy the benefit of medical insurance reimbursement;
iiii. Pharmaceuticals made by the hospitals, etc.
The selling price of pharmaceuticals mentioned in this section shall not be more than the maximum price of retailing price in Shanghai.
c. Market Adjustment Price
The price of other pharmaceuticals which are excluded from the part a) and b) is fixed by pharmaceutical companies autonomously according to market conditions. Then the price shall be submitted to the relevant industry association for assessment. The industry association will publish the highest retailing price to adjust the retailing price of pharmaceutical companies.
3.- Methods of Price-fixing
a. Price of Similar Pharmaceutical Products
The price of pharmaceuticals entering into Shanghai’s market for the first time shall be fixed in light of the highest retailing price of the same kind of pharmaceuticals being sold in Shanghai’s market according to relevant regulations. This price should be the highest retailing price of new pharmaceuticals to be sold in Shanghai.
b. Centralized Bidding
Firstly, the reasonable bidding price is fixed through normative price evaluation by way of public bidding and internet purchase. Secondly, based on the bidding price, Shanghai price administration authorities publish the hospital supply price and highest retailing price according to the Rules of Increase of Pharmaceutical Price.
c. Information of Market Price and Pharmaceutical Bidding Price.
Shanghai price administration authorities adjusts pharmaceutical highest retailing price dynamically based on the information of market pharmaceutical price in Shanghai & surrounding provinces and the bidding price fixed during the centralized purchase by medical institutions.
Conclusions
Pharmaceutical price-fixing mechanism is one of the crucial parts of health care reform of China. However, national measures on management of pharmaceutical prices have been informed for public comments but the formal measures have not been issued. The Measures were issued according to the principle of pharmaceutical price-fixing and management. Although the Measures were issued as a trial implementation, they are regarded as an important guidance to regulate the pharmaceutical prices in Shanghai.
The Measures just indicate the framework of the pharmaceutical price-fixing and management. However, the Measures don’t regulate the specific operational rules regarding the fixing of pharmaceutical prices. Moreover, the Measure shall be subject to national measures on pharmaceutical prices to be issued by NDRC. Therefore, the Measures shall be improved and adjusted in the following months after its implementation.
New Policy on Social Insurance for Foreign Employees in China
The Ministry of Human Resources and Social Security issued the Tentative Measures for Social Insurance Enrollment of Foreign Employees in China (Draft for Comments) (the "Tentative Measures") on June 10, 2011.
The main contents of the Tentative Measures are as follows:
1.- Scope of Application
A company together with its foreign employee shall pay the social insurance in one of the following cases:
- A foreign employee working in a company, public institution, non governmental organization, private non-enterprise unit, foundation, law firm, or accounting firm which is legally established in China;
- A foreign employee working for a foreign enterprise and is being dispatched to the branch or representative office of the foreign enterprise which is legally established in China.
2.- Social Insurance Benefits
2.1 Withdrawal of Social Security Amounts
If a foreign employee submits a written application, the amount in his/her individual account can be paid back to him/her and the relationship of the social insurance will be terminated.
2.2 Reserve Social Security Amounts
If a foreign employee terminates his/her labor relationship before the retirement age has been arrived, his/her individual account of the social insurance will be reserved, and if he/she continues his/her labor relationship in the future, the years of his/her payments of the social insurance will be continued and accumulated.
3. Inheritance
If a foreign employee dies, the amount in his/her individual amount can be inherited by his/her successor.
4. Dispute Resolution
If there is a dispute regarding the social insurance between a company and its foreign employee, the mediation, arbitration or lawsuit can be raised by either party.
The Tentative Measures are only a draft for comments. If it is adopted and promulgated, the expenses of the company, the branch or the representative office will be increased, since the company, the branch or the representative office shall pay part of the social insurance for its foreign employee. However, the detailed measures of the social insurance for foreign employees, including but not limit to the percentages to be paid by the company and the foreign employee, the age of retirement of the foreign employee, or whether the social insurance is mandatory or voluntary, will be clear after the Tentative Measures is promulgated.