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1China Tax & Investment Express

China Tax CenterChina Tax & Investment Express

China Tax & Investment Express (CTIE)* brings you the latest tax and business announcements on a weekly basis. CTIE provides a synopsis of each announcement including a link that leads you to the full content of the announcement (in Chinese). Please feel free to contact your EY client service professionals for further assistance if you find the announcements have an impact on your business operations.

CTIE does not replace our China Tax & Investment News* which will continue to be prepared and distributed to provide more in-depth analyses of tax and business developments in China.*If you wish to access the previous issues of CTIE and China Tax & Investment News, please contact us.

Tax circulars

► Notice regarding certain Value-added Tax (VAT) related policies (Caishui [2017] No. 90)

Synopsis

On 20 December 2017, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly released Caishui [2017] No. 90 (“Circular 90”) to clarify various VAT policies.

Issue No. 20180015 Jan 2018


Key features of Circular 90 are as follows:

From 1 May 2016 to 30 June 2017:

Contracted land

According to Caishui [2017] No. 58 (“Circular 58”, i.e., Notice regarding certain policies related to the VAT pilot arrangements), starting from 1 July 2017, where a taxpayer provides contracted land to farmers for agricultural production purposes via subcontracting, rental, swap, transfer or investments, shall be exempt from VAT. Circular 90 grants a retroactive treatment, i.e., a taxpayer whom carried out the abovementioned activities from 1 May 2016 to 30 June 2017 shall be exempt from VAT. Any VAT paid that should be exempt according to Circular 90 before promulgation of Circular 90 can be used to offset against the VAT payable for the following months or refunded. (Please refer to CTIE2017028 for details of Circular 58.)

Effective from 1 May 2016:

Membership fees

Membership fees collected by social organizations shall be exempt from VAT. Any VAT paid that should be exempt according to Circular 90 before promulgation of Circular 90 can be used to offset against the VAT payable for the following months or refunded.

From 1 January 2018 to 31 December 2019:

Credit guarantee and re-guarantee

Income derived by taxpayers from providing credit guarantee on loans or bond issuance for small domestic/farming households, small and micro-sized enterprises (SMEs) as well as self-employed industrial and commercial households (hereinafter referred to as “original guarantee”) or from providing re-guarantee to the above original guarantee contracts shall be exempt from VAT. In case there are more than one original guarantee contracts, all of the original guarantee contracts shall be entitled to VAT exemption, otherwise, the re-guarantee contract should be subject to VAT.

To be eligible for the VAT exemption, taxpayers are required to account for the VAT-exempt original guarantee income and the re-guarantee income separately from other VAT-taxable income, complete VAT filings according to the prevailing regulations and maintain the relevant supporting documents for reference. If taxpayers fail to account for the relevant income separately, the VAT exemption shall not apply.

Accordingly, the VAT exemption policies for institutions providing credit guarantee to SMEs as prescribed in Appendix 3 (i.e., the “Regulations on Transitional Policies related to the VAT Pilot Arrangements”) of Caishui[2016] No. 36 (“Circular 36”) shall be abolished from 1 January 2018. Taxpayers whom may not have already taken advantage of this preferential policy for the three years having ended 31 December 2017 may continue to enjoy VAT exemption within the prescribed period.

Effective from 1 January 2018:

Input VAT treatment for fixed assets and real properties rented

Where the fixed assets and real estate properties rented by taxpayers are used for both items subject to the general calculation method and other items like the ones subject to the simplified calculation method or VAT-exempt or the ones used for collective welfare/personal consumption, the input VAT on the rent is allowed to be deducted in full from the output VAT.


Transport tickets

Where the taxpayers have already sold the transport tickets but the customers fail to use them within the prescribed time period, the ticket revenue derived by the taxpayers shall be subject to VAT under the category of “transport services” (at the applicable VAT rate of 11%). The fees charged by taxpayers for handling of ticket refunds shall be subject to VAT under the category of “other modern services” (at the applicable VAT rate of 6%).

Air transport sales revenue

For air transport sales agencies engaging in overseas segment ticket agency services, the sales revenue shall be the balance of total considerations plus relevant extra charges minus the payment settled for overseas segment tickets and related charges to other entities or individuals. Legitimate and valid vouchers shall be obtained to support the previously mentioned deductions:

► For payments to entities or individuals within the territory of the People’s Republic of China (PRC), those could be invoices or itineraries;

► For payments to overseas entities or individuals, those could be payment receipts. In case of any doubt on the receipts, Chinese tax authorities are empowered to request the agencies to provide certification notarized by overseas notary organizations.

Loan services and transfer of financial products

With respect to loan services and transfer of certain financial products by managers in the course of managing asset management products, the sales revenue shall be determined in accordance with the following provisions:

► For loan services, the sales revenue shall be the interest and other income of interest nature generated after 1 January 2018;

► With respect to the transfer of stocks (excluding non-tradable stocks), bonds, funds and non-commodity futures that were acquired before 31 December 2017, the sales revenue could be calculated based on either the actual prices at which these financial products were bought or the closing price of stocks (the closing price on the last trading day before suspension for stocks in suspension on the last trading day in 2017), valuation of bonds (provided by the Bond Valuation Center Co., Ltd. or the China Securities Index Co., Ltd.), net values of fund units, or the settlement prices of non-commodity futures on the last trading day in 2017.

Input VAT credit for toll fees

The input VAT credit for different types of toll fees should be calculated as follows:

► Taxpayers that pay toll fees for roads shall claim input VAT credits based on the amounts indicated on the electronic VAT normal invoices.

From 1 January 2018 to 30 June 2018, taxpayers that pay toll fees for expressways but temporarily fail to obtain the electronic VAT normal invoices, can claim input VAT credits based on the amounts indicated on the toll invoices (excluding financial bills, the same below) and according to the following formula:

Input VAT credit for toll fees charged for expressways = Amount indicated on the invoices for the toll fees ÷ (1＋3%) ×3%


From 1 January 2018 to 31 December 2018, taxpayers that pay toll fees for primary public roads (一级公

路) and secondary public roads (二级公路) but temporarily fail to obtain the electronic VAT normal invoices, can claim input VAT credits based on the amounts indicated on the toll invoices and according to the following formula:

Input VAT credit for toll fees charged for primary public road (一级公路)/secondary public road (二级公路)

= Amount indicated on the invoices for the toll fees ÷ (1＋5%) ×5%

► Taxpayers that pay toll fees for bridges and entrances can claim input VAT credits based on the amounts indicated on the toll invoices and according to the following formula:

Input VAT credit for toll fees charged for toll bridge/entrance = Amount indicated on the invoices for the toll fees ÷ (1＋5%) ×5%

► Accordingly, Circular Caishui [2017] No. 86 (i.e., Notice regarding VAT credit issues related to toll fees) would be abolished from 1 January 2018.

You can click this link to access the full content of Circular 90:http://szs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201712/t20171225_2788186.html

You can click this link to access the full content of Circular 36:http://szs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201603/t20160324_1922515.html

You can click this link to access the full content of Circular 58:http://www.mof.gov.cn/mofhome/shuizhengsi/zhengwuxinxi/zhengcefabu/201707/t20170710_2642405.html

► Public notice (PN) regarding issues related to VAT invoice issuance for urban water supply enterprises after the launch of Resource Tax reform on water resources (SAT PN [2017] No. 47)

Synopsis

China launched a pilot run of Resource Tax (RT) reform on water resources (hereinafter referred to as “RT Pilot Reform”) in Hebei Province starting from 1 July 2016. In supporting a smooth implementation of the pilot run in Hebei, the MOF, SAT and Ministry of Water Resources (MWR) jointly released Caishui [2017] No. 80 (“Circular 80”) on 24 November 2017 to expand the RT Pilot Reform to Beijing, Tianjin, Shanxi, Inner Mongolia, Shandong, Henan, Sichuan, Shaanxi and Ningxia from 1 December 2017. (Please refer to CTIE2017047 for details of Circular 80.)

In terms of substance, the RT on water resources may be seen as a substitute for water resource fees. Prior to the RT Pilot Reform, certain pilot provinces levied water resource fees on urban public water consumers in addition to the basic water rates. The VAT treatments for the basic water rates and water resource fees collected by urban public water supply enterprises (hereinafter referred to as “water supply enterprises”) are as follows:

► The basic water rates shall be subject to VAT and the VAT invoices shall be issued to the consumers in this regard;

► On the other hand, VAT should not be levied on the water resource fees collected and special financial bills should be issued accordingly.

http://szs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201712/t20171225_2788186.html

http://szs.mof.gov.cn/zhengwuxinxi/zhengcefabu/201603/t20160324_1922515.html

http://www.mof.gov.cn/mofhome/shuizhengsi/zhengwuxinxi/zhengcefabu/201707/t20170710_2642405.html


Under the RT Pilot Reform, water resource fees are superseded by RT, which shall be paid by the water supply enterprises. According to Article 26 of Circular 80, RT should be levied on public-sector water supplies while not increasing the relevant burden on water supply enterprises. Taking into consideration that the water supply enterprises can no longer issue special financial bills, the SAT released SAT PN [2017] No. 47 (“PN 47”) on 25 December 2017 to clarify issues related to invoice issuance under the RT Pilot Reform. PN 47 stipulates that the water rates corresponding to RT paid by the water supply enterprises shall not be subject to VAT. Accordingly, the water supply enterprises shall issue VAT normal invoices with the item of “non-taxable tap water”. PN 47 took effect on 1 December 2017.

As further elaborated in SAT’s interpretation of PN 47, the VAT invoice issuance related to the sales of tap water by water supply enterprises shall be conducted as follows:

Issuance of VAT normal invoices

For water consumers not entitled to input VAT credit, water supply enterprises shall issue VAT normal invoices stating the following information:

► Water rate collected on taxable tap water subject to 3% VAT; and

► RT on water resources which is not subject to VAT

Issuance of both VAT special invoices and VAT normal invoices

For water consumers entitled to input VAT credit, water supply enterprises shall respectively issue:

► VAT special invoices for water resources subject to 3% VAT via the new VAT invoice system; and

► VAT normal invoices for RT on water resources

You can click this link to access the full content of PN 47:http://www.chinatax.gov.cn/n810341/n810755/c2982485/content.html

You can click this link to access the full content of the Interpretation of PN 47 from the SAT:http://www.chinatax.gov.cn/n810341/n810760/c2982465/content.html

You can click this link to access the full content of Circular 80:http://hd.chinatax.gov.cn/guoshui/action/GetArticleView1.do?id=10174368&flag=1

► Notice regarding issues related to the allocation of Environmental Protection Tax (EPT) revenue (Guofa[2017] No. 56)

Synopsis

To promote environmental protection in China, the Standing Committee of the National People’s Congress (NPC) passed and promulgated the “EPT Law of the PRC” (“EPT Law”) via the Chairman Order [2016] No. 61 on 25 December 2016. According to the EPT Law, EPT taxpayers include enterprises, public institutions and other producers and business operators that directly discharge taxable pollutants within the territory (land and coastline) of the PRC. The EPT Law took effect from 1 January 2018. (Please refer to China Tax & Investment News Issue No. 2017001 for details of the EPT Law.)

The EPT Law contains 28 articles under five chapters which cover aspects including EPT taxpayers and objects, scope of charge and taxable basis, tax rates, preferential EPT treatment and EPT collection and administration. However, the EPT Law does not specify whether EPT revenue shall be exclusively used for defined purposes.

http://www.chinatax.gov.cn/n810341/n810755/c2982485/content.html


http://hd.chinatax.gov.cn/guoshui/action/GetArticleView1.do?id=10174368&flag=1


Subsequently in a press conference held at the end of 2016, the director of the tax policy department under the MOF clarified that although the EPT revenue will not be exclusively used for environmental protection purposes, the government will ensure it be managed and used effectively to combat pollution and promote environmental protection. In addition, the director mentioned that the central government intended to fully designate the EPT revenue to local fiscal revenue.

The issues have been clarified recently. The State Council released Guofa [2017] No. 56 (“Circular 56”) on 22 December 2017, announcing the decision that the EPT revenue will be fully designated to local fiscal revenue.

You can click this link to access the full content of Circular 56:http://www.gov.cn/zhengce/content/2017-12/27/content_5250841.htm

You can click this link to access the full content of the EPT Law:http://www.npc.gov.cn/npc/xinwen/2016-12/25/content_2004993.htm

► Law of the PRC on Tobacco Tax (Chairman Order [2017] No. 84)

Synopsis

As early as in October 2016, the first draft of Tobacco Tax Law (hereinafter referred to as the “First Draft”) was developed by the SAT for public consultation. Subsequently in September 2017, the Standing Committee of the NPC (NPC Standing Committee) conducted the first round deliberation on the First Draft and published a further revised Tobacco Tax Law (hereinafter referred to as the “Discussion Draft”) for public consultation. (Please refer to CTIE2016041 and CTIE2017036 for details of First Draft and Discussion Draft.)

The Discussion Draft was submitted for the second round deliberation at the 31st session of the 12th NPC Standing Committee. On 27 December 2017, the NPC Standing Committee passed and promulgated the “Law of the PRC on Tobacco Tax” (hereinafter referred to as the “Tobacco Tax Law”) through the Chairman Order [2017] No. 84. The Tobacco Tax Law will take effect from 1 July 2018 and supersede the prevailing “Provisional Regulations of the PRC on Tobacco Tax” (hereinafter referred to as the “Provisional Regulations on Tobacco Tax”) which have been effective since 28 April 2006.

The Tobacco Tax Law contains 10 articles that cover the taxpayers of Tobacco Tax, scope of charge, tax basis, applicable tax rate (i.e., 20% which is consistent with the prevailing tax rate) and the relevant tax administrative measures, etc. The key features of the Tobacco Tax Law are basically consistent with those of the Provisional Regulations on Tobacco Tax.

For your easy reference, we compare the Tobacco Tax Law with the Provisional Regulations on Tobacco Tax and list the major changes in the following table:

Items Provisional Regulations on Tobacco Tax

Tobacco Tax Law

Taxpayer Entities that engage in the purchase of tobacco leaves within the territory of the PRC

Entities that engage in the purchase of tobacco leaves within the territory of the PRC according to the “Law of the PRC on Tobacco Monopoly”

Tax basis Considerations paid by the taxpayer for purchase of tobacco

Total considerations actually paid by the taxpayer for purchase of tobacco

Tax rate 20% Remains the same

Tax collection authority Tax authorities located where the tobacco are purchased

Remains the same

The timewhen thetaxobligationarises

The date of purchase of tobacco Remains the same

Term of taxation － On a monthly basis

Tax filing deadline Within 30 days after the end of the day when the tax obligation arises

Within 15 days after the end of the month when the tax obligation arises

http://www.gov.cn/zhengce/content/2017-12/27/content_5250841.htm

http://www.npc.gov.cn/npc/xinwen/2016-12/25/content_2004993.htm


You can click this link to access the full content of the Tobacco Tax Law:http://www.npc.gov.cn/npc/xinwen/2017-12/27/content_2035710.htm

You can click this link to access the full content of the Provisional Regulations on Tobacco Tax:http://www.gov.cn/zwgk/2006-05/10/content_277505.htm

You can click this link to access the full content of the First Draft:http://www.chinatax.gov.cn/n810214/n810606/c2287761/content.html

You can click this link to access the full content of the Discussion Draft:http://xxgk.gaomi.gov.cn/openInfo/info/2017/72a61030b7c540109073092e4c3c70cf.html

► Law of the PRC on Tonnage Tax (Chairman Order [2017] No. 85)

Synopsis

The MOF released the first draft of Tonnage Tax Law (hereinafter referred to as the “First Draft”) for public consultation in October 2016. Subsequently in November 2017, the NPC Standing Committee conducted the deliberation on the First Draft and published a revised draft version of Tonnage Tax Law (hereinafter referred to as the “Second Draft”) for public comment. (Please refer to CTIE2016041 and CTIE2017044 for details of First Draft and Second Draft.)

The Discussion Draft was submitted for the second round deliberation at the 31st session of the 12th NPC Standing Committee. On 27 December 2017, the NPC Standing CoFmmittee passed and promulgated the “Law of the PRC on Tonnage Tax” (hereinafter referred to as the “Tonnage Tax Law”) through Chairman Order [2017] No. 85. The Tonnage Tax Law will take effect from 1 July 2018 and supersede the prevailing “Provisional Regulations of the PRC on Tonnage Tax” (hereinafter referred to as the “Provisional Regulations”) which have been effective since 1 January 2012. (Please refer to CTIE2011032 for details of the Provisional Regulations.)

The Tonnage Tax Law contains 22 articles which cover the taxable items of Tonnage Tax, the applicable tax rates and relevant tax administrative measures. Basically, the structure and main contents of the Draft PRC Tonnage Tax Law are consistent with those of the Provisional Regulations.

Key changes made in the Tonnage Tax Law include:

► The Provisional Regulations stipulate that any adjustment on the table of Tonnage Tax rates shall be subject to approval from the State Council. The Second Draft revised such regulation by stipulating that such adjustment shall be brought up by the State Council and filed to the NPC Standing Committee for approval. Nevertheless, the description with respect to the adjustment of the table of Tonnage Tax rates as prescribed in the Second Draft is finally removed in the Tonnage Tax Law.

► Submission of electronic data of Tonnage Tax license is added as an alteration in addition to manual submission of Tonnage Tax license for the entry/exit formalities of taxable vessels.

► Expansion of the scope of vessels eligible for Tonnage Tax exemption, e.g., police vessels. In addition, it is stipulated that for other types of vessels, the State Council shall file the record with the NPC Standing Committee for Tonnage Tax exemption purposes.

► According to the Tonnage Tax Law, where the customs office finds any overpaid taxes, it shall inform the taxpayer to go through the tax refund formalities within 24 hours (instead of immediately as prescribed in the Provisional Regulations); where the taxpayer finds any overpaid taxes, within three years (instead of one year as prescribed in the Provisional Regulations), taxpayers may apply to the customs office in writing for refund of overpaid tax plus interest calculated based on the rate of demand deposit of the same period. Upon receiving the application, the customs offices should verify and notify the taxable vessels to proceed with the tax refund procedure within 30 days.

► The Tonnage Tax Law provides detailed regulations on Tonnage tax treatments for yachts in the table of Tonnage Tax rates.


http://www.gov.cn/zwgk/2006-05/10/content_277505.htm


http://xxgk.gaomi.gov.cn/openInfo/info/2017/72a61030b7c540109073092e4c3c70cf.html


You can click this link to access the full content of the Tonnage Tax Law:http://www.npc.gov.cn/npc/xinwen/2017-12/27/content_2035711.htm

You can click this link to access the full content of the Provisional Regulations:http://www.gov.cn/zwgk/2011-12/09/content_2015674.htm

You can click this link to access the full content of the First Draft:http://tfs.mof.gov.cn/zhengwuxinxi/gongzuotongzhi/201610/t20161018_2437617.html

You can click this link to access the full content of the Second Draft:No official link for the Second Draft can be located at the moment.

► Administrative Measures for Enterprises’ Outbound Investments (NDRC Order [2017] No. 11)

Synopsis

Chinese enterprises venturing overseas are not only facing new opportunities but also encountering challenges in the rapidly changing global environment. To facilitate investment abroad while guarding against risks, the General Office of the State Council released Guobanfa [2017] No. 74 on 4 August 2017, providing Guidelines on further Guidance and Regulation on Outbound Investments and urged the relevant government authorities to formulate and promulgate detailed policies and measures in this regard. (Please refer to CTIE2017034 for details of Circular 74.)

In response, the Department of Foreign Capital and Overseas Investments of the National Development and Reform Commission (NDRC) released a discussion draft on the “Administrative Measures for Enterprises’ Outbound Investments” (hereinafter referred to as the “Discussion Draft”) for public comment on 3 November 2017, aiming at further simplifying administrative procedures and optimizing government services with respect to outbound investments.

The Discussion Draft has been finalized and released by the NDRC through NDRC Order [2017] No. 11 (“Order 11”, i.e., Administrative Measures for Enterprises’ Outbound Investments) on 26 December 2017. Order 11 will become effective on 1 March 2018 and supersede NDRC Order [2014] No. 9 (“Order 9”, i.e., Administrative Measures for Approval and Record Filing of Outbound Investment Projects). The major contents in Order 11 remain unchanged as compared to the Discussion Draft. (Please refer to CTIE2017043 for details of the Discussion Draft.)

Major contents and key reform policies of Order 11 are as follows:

Scope of outbound investments covered

The outbound investments prescribed in Order 11 refer to the investment activities conducted by enterprises located within the territory of the PRC (hereinafter referred to as “investors”) either directly or via overseas enterprises under their control through making investments with assets/equities or providing financing/guarantee so as to obtain overseas ownership, control rights, business management rights and other related equities1. The “investment activities” mentioned here mainly include but are not limited to:

► Acquisition of ownership/use right/other rights and interests of the land abroad;

► Acquisition of concession/other rights and interests to prospect and exploit overseas natural resources;

► Acquisition of ownership/business management rights/other rights and interests of overseas infrastructure;

► Acquisition of ownership/business management rights/other rights and interests of overseas enterprises/assets;

► Establishment/renovation/expansion of overseas fixed assets;

► Incorporation of a new overseas enterprise or additional investment in an existing overseas enterprise;

► Establishment of/participation in overseas equity investment funds;

► Control of overseas enterprises/assets by means of an agreement, trust, etc.

Business circulars


http://www.gov.cn/zwgk/2011-12/09/content_2015674.htm

http://tfs.mof.gov.cn/zhengwuxinxi/gongzuotongzhi/201610/t20161018_2437617.html


Key reform policies on outbound investments

Order 11 provides certain reform policies to further simplify administrative procedures and optimize government services with respect to outbound investments.

Simplifying administrative procedures to reduce enterprises’ costs

Removing the information reporting requirement

The provision under Order 9 stating that “for an outbound acquisition or bidding project with Chinese investments of USD300 million or above, the investor is required to conduct information reporting with the NDRC. No substantive work should be carried out before receiving the written endorsement from the NDRC.” This provision shall be revoked by Order 11 to further simplify the pre-event administration for outbound investments.

Cancelling local approval procedures

Order 9 stipulates that where the application documents submitted by local enterprises should be subject to initial approval from the provincial departments under the NDRC before the provincial departments submit the same to the NDRC for approval. Order 11 repeals such provision by stipulating that the local enterprises should submit the application documents directly to the NDRC, which may save enterprises’ efforts and costs significantly.

Granting a more relaxed time frame for enterprises to obtain the required approval or complete the record filing

According to Order 9, where the enterprises intend to make outbound investments which are subject to approval or record filing with the NDRC, the enterprises should obtain the approval documents or the notifications for the record filing before entering into binding contracts; alternatively, the enterprises are required to indicate in the binding contracts that the effectiveness of the contracts would be the date the approval documents or the notifications for the record filing from the NDRC are obtained. In this regard, Order 11 prescribes that, for the outbound investments subject to approval or record filing management, the enterprises as the investors should obtain the approval documents or the notifications for the record filing before the implementation of such projects.

Launching innovative regulatory system and strengthening the interim and ex-post event supervision

Substance over form principle

According to the “substance over form principle”, it is stipulated in Order 11 that indirect outbound investments domestic enterprises/natural persons made via their controlled overseas enterprises (hereinafter referred to as “indirect outbound investments”) shall be subject to the outbound investment management mechanism carried out by the NDRC. However, this does not mean that all such investments shall be subject to approval/record filing, as a differentiated ante-post approach shall be adopted while the interim and post event supervision shall fully be covered in the outbound investment management mechanism:

► Indirect outbound investments involving sensitive countries/regions/industries2 shall be subject to approval.

► Indirect outbound investments projects with Chinese investments of USD300 million or above that are not involving sensitive countries/regions/industries are required to notify the NDRC with the relevant information but are not subject to record-filing procedures.

► Record filing and notification to the NDRC are not required for indirect outbound investments with Chinese investments of less than USD300 million that are not involving sensitive countries/regions/industries.


Innovative regulatory system

The following innovative measures are introduced in Order 11:

► A coordinated supervision mechanism is to be established to carry out supervision and investigation on outbound investments via online supervision, official interview or inquiry, random inspection, etc.

► Reporting mechanisms shall be introduced to strengthen the full range of supervision on outbound investments, including reporting on completion status, reporting on significant adverse situations, inquiries and reporting on major incidents, etc.

Disciplinary measures

Order 11 stipulates the following disciplinary measures:

► Disciplinary measures are specified for violations such as false applications, obtaining approval or notification for record filing via improper means, unfair competition, etc.

► The violations for outbound investments shall be recorded and subject to joint discipline by the relevant government authorities.

Optimizing government services to facilitate outbound investments

Enriching government services

Order 11 introduces various measures to facilitate outbound investments, e.g., investors may consult with/offer suggestions to the relevant government authorities on outbound investment policies; the NDRC will release outbound investment related information and set up cooperation mechanism to protect investors’ interest, etc.

Establishment of online administration and service system for outbound investments

An online system will be established by the NDRC to handle the majority of outbound investment administration processes, thus efficiency and service quality are expected to be improved significantly.

Order 11 covers comprehensive measures regarding outbound investments, including matters related to the approval procedure and record filing, plus scope of supervisions and relevant measures. In particular, it is worth noting that outbound investments by local individuals via their controlled overseas enterprises or enterprises in Hong Kong, Macau or Taiwan shall be subject to the measures in Order 11. However, direct outbound investments or direct investments to Hong Kong, Macau and Taiwan conducted by local individuals are not bound by the measures in Order 11.

Our observations

Under the prevailing regulations, investors can only carry out substantive work (e.g., signing bidding contracts for acquisitions, and proceeding with the formal bidding) provided that written endorsement from the NDRC is received. In addition, outbound investment projects involving sensitive countries/regions/industries shall be subject to approval. Among which, for those investment projects with Chinese investments of USD2 billion or above, the NDRC shall address its opinion upon review and report the same to the State Council for approval. According to Order 11, the aforementioned requirements on the “written endorsement” and “approval from the State Council” shall be removed effective from 1 March 2018. However, it does not directly mean the loosening of outbound investments supervision. On the other hand, a synergetic regulatory mechanism will be established to enhance the interim and post event supervision on outbound investments and violations for outbound investments shall be subject to joint discipline by the relevant government authorities.


The NDRC spokesman asserted that, the NDRC will issue the relevant supporting documents as mentioned in Order 11, including the catalogue of sensitive industries, the standard letters and the relevant attachments, etc. In addition, the NDRC will promote the establishment of the network system for outbound investments. Please stay tuned and we will bring you more updates in this regard.

1 Enterprises mentioned in Order 11 include non-financial enterprises and financial enterprises in diverse forms.

2 Sensitive countries/regions/industries refer to countries that have no diplomatic relations with the PRC, countries/regions at war or in a state of turmoil, countries restricted by international agreements/treaties etc. Sensitive industries include manufacturing, research and development and repair of weaponry, cross-border water resource exploitation and usage, news and media, and restricted industries according to the macroeconomic control policy of the PRC. The Catalogue of sensitive industries shall be published by the NDRC in due course.

You can click this link to access the full content of Order 11:http://www.ndrc.gov.cn/zcfb/zcfbl/201712/t20171226_871560.html

You can click this link to access the full content of the NDRC Press:http://www.ndrc.gov.cn/gzdt/201712/t20171226_871585.html

You can click this link to access the full content of the Discussion Draft:http://www.ndrc.gov.cn/gzdt/201711/t20171103_866220.html

You can click this link to access the full content of Order 9:http://www.ndrc.gov.cn/zcfb/zcfbl/201404/t20140410_606600.html

► Notice regarding the temporary adjustments of certain administrative approval items and special administrative measures of admission for investments in Beijing (Guofa [2017] No. 55)

Synopsis

The State Council released Guohan [2015] No. 81 (“Circular 81”) to launch a three-year pilot program regarding the opening-up of the service industry in Beijing since 5 May 2015 (hereinafter referred to as the “pilot”), aiming to make the most of the service industry in Beijing and promote the opening-up of science and technology services, internet and information services, cultural and educational services, financial services, commercial and tourist services and healthcare services. Subsequently in October 2015, the State Council released Guofa [2015] No. 60 (“Circular 60”) to adjust certain administrative approval items and special administrative measures of admission in Beijing during the pilot period, allowing the setup of wholly foreign-owned performance agencies and provision of services within Beijing in specific areas and removing the Chinese holding requirement for foreign investments in aircraft maintenance projects. (Please refer to CTIE2015021 and CTIE2015060 for details of Circular 81 and Circular 60.)

On 25 June 2017, the State Council released Guohan [2017] No. 86 (“Circular 86”) to further escalate the three-year pilot with relaxed admittances to various industries covering air transportation, other construction services, arts and culture, banking, enterprise management services, legal services, human resource services as well as pharmaceutical research and experimental development, etc. In response, on 10 December 2017, the State Council released Guofa [2017] No. 55 (“Circular 55”) to adjust, on a temporary basis from the issuance date of Circular 55 to 5 May 2018, the administrative approval requirements and special market admission measures in Beijing originally stipulated in the following administrative regulations and departmental regulations approved by the State Council (please refer to CTIE2017028 for details of Circular 86):

Paragraphs 1 and 2 of Article 10 of the Administrative Regulations on Commercial Performance

Foreign investors are allowed to establish entities to conduct commercial performances with specified areas, with no limitation on the foreign investment ratio.

http://www.ndrc.gov.cn/zcfb/zcfbl/201712/t20171226_871560.html

http://www.ndrc.gov.cn/gzdt/201712/t20171226_871585.html

http://www.ndrc.gov.cn/gzdt/201711/t20171103_866220.html

http://www.ndrc.gov.cn/zcfb/zcfbl/201404/t20140410_606600.html


Article 6 of the Administrative Regulations on Entertainment Venues

Foreign investors are allowed to establish entities to conduct entertainment businesses within specified areas, with no limitation on the foreign investment ratio.

Paragraph 1 (a) of Article 34 of the Administrative Regulations of the PRC on Foreign-funded Banks

Explore the possibility to allow newly set up or transformed wholly foreign-funded banks/Chinese-foreign joint venture banks or Chinese branches of foreign banks to lodge application for RMB businesses along with their application for operation commencement.

Article 3 of the Regulations on Foreign Investments in the Civil Aviation Industry

Foreign investors are allowed to invest in air transportation agency enterprises.

Article 22 of the Prohibited Catalogue under the Foreign Investment Industrial Guidance Catalogue

Foreign investors are allowed to invest in audio production in cooperation with Chinese investors (within specified industrial bases/parks in Beijing and the Chinese investors should lead the operation and final approval on the content of the audio production).

The State Council will make adjustments to the abovementioned contents according to the implementation status (upon expiry of the pilot plan) for the opening-up of the service industry in Beijing.

Relevant investors are advised to consider the impact of Circular 55 and stay tuned for the adjustments of departmental and local circulars to be released by relevant departments of the State Council and People's Government of Beijing Municipality.





► PN regarding matters related to the issuance of electronic ordinary VAT invoices for toll fees (MOT/SAT PN [2017] No. 66)http://zizhan.mot.gov.cn/zfxxgk/bnssj/glj/201712/t20171226_2959769.html

► Notice regarding the tax filing deadlines in 2018 (Shuizonghanban [2017] No. 576)http://www.qd-n-tax.gov.cn/JinQiWenJian/201712/t20171227_66159.htm

► PN regarding the Vehicle Purchase Tax exemption on new energy vehicles (MOF/SAT/MIIT/MOST PN [2017] No. 172) http://hd.chinatax.gov.cn/guoshui/action/GetArticleView1.do?id=10859392&flag=1

Other business, customs and tax related circulars recently announced by central government authorities:





http://zizhan.mot.gov.cn/zfxxgk/bnssj/glj/201712/t20171226_2959769.html

http://www.qd-n-tax.gov.cn/JinQiWenJian/201712/t20171227_66159.htm

http://hd.chinatax.gov.cn/guoshui/action/GetArticleView1.do?id=10859392&flag=1


► Measures for Enterprise Annuities (MOHRSS/MOF Order [2017] No. 36)http://www.mohrss.gov.cn/SYrlzyhshbzb/zcfg/flfg/gz/201712/t20171221_284783.html

► Notice regarding opinions on supporting the further innovative development of Pilot Free Trade Zones (Shangzifa [2017] No. 483)http://www.fjftz.gov.cn/article/index/aid/7816.html

► Decision on extending the duration regarding the authorization to the State Council to temporarily adjust the implementation of relevant laws and regulations in certain administrative regionshttp://www.npc.gov.cn/npc/xinwen/2017-12/27/content_2035709.htm

► Notice regarding a list of national technology business incubators in 2017 (Guokefahuo [2017] No. 412)http://news.xmsme.gov.cn/2017/12/28/624_61236.shtml

► PN regarding matters related to the implementation of the “Free Trade Agreement (FTA) between the Government of the PRC and the Government of Georgia” (GAC PN [2017] No. 64)http://www.customs.gov.cn/customs/302249/302266/302269/760666/index.html

► PN regarding administrative measures on the place of origin of import and export goods under the “FTA between the Government of the PRC and the Government of Georgia” (GAC PN [2017] No. 61)http://www.customs.gov.cn/customs/302249/302266/302269/760650/index.html

► PN regarding the adjusted measures of customs tariff for year 2018 (GAC PN [2017] No. 65)http://www.customs.gov.cn/customs/302249/302266/302269/763156/index.html

► 2018 Catalog of Goods under Export Licensing Administration (MOF/GAC PN [2017] No. 88)http://www.mofcom.gov.cn/article/b/e/201712/20171202690519.shtml

► 2018 Catalog of Goods under Import Licensing Administration (MOFCOM/GAC/AQSIQ PN [2017] No. 89)http://www.mofcom.gov.cn/article/b/e/201712/20171202690527.shtml

► Order regarding the issuance of the “Decision of the GAC on the Amendments to Certain Regulations” (GAC Order [2017] No. 235)http://www.customs.gov.cn/customs/302249/302266/302268/761123/index.html

► PN regarding further promoting the online declaration of import goods under the preferential trade agreement (GAC PN [2017] No. 67)http://www.customs.gov.cn/customs/302249/302266/302269/1038439/index.html

http://www.mohrss.gov.cn/SYrlzyhshbzb/zcfg/flfg/gz/201712/t20171221_284783.html

http://www.fjftz.gov.cn/article/index/aid/7816.html


http://news.xmsme.gov.cn/2017/12/28/624_61236.shtml

http://www.customs.gov.cn/customs/302249/302266/302269/760666/index.html



http://www.mofcom.gov.cn/article/b/e/201712/20171202690519.shtml

http://www.mofcom.gov.cn/article/b/e/201712/20171202690527.shtml




Contact usFor more information, please contact your usual EY contact or one of the following of EY’s China tax leaders.

• Martin Ngai (Beijing) +86 10 5815 3231 [email protected]

• Fisher Tian (Tianjin) +86 22 5819 [email protected]

Office Tax Leaders

• Samuel Yan (Dalian/Shenyang)+86 10 5815 [email protected]

Service Line Tax Leaders

• Travis Qiu (Transfer Pricing)+86 21 2228 [email protected]

• Paul Wen (People AdvisoryServices)+852 2629 [email protected]

• Samuel Yan (Global Compliance & Reporting)

+86 10 5815 [email protected]

• Becky Lai (Tax Policy)+852 2629 [email protected]

• Jesse Lv (Transaction Tax)+86 21 2228 [email protected]

• Jane Hui +852 2629 [email protected]

Author – China Tax Center

Greater China Tax Leader

• Lucy Wang (Qingdao) +86 10 5815 [email protected]

• Vickie Tan (Shanghai)+86 21 2228 [email protected]

• Audrie Xia (Suzhou)+86 21 2228 [email protected]

• Raymond Zhu (Wuhan)+86 21 2228 [email protected]

• Jean Li (Xiamen)+86 755 2238 5600 [email protected]

• Rio Chan (Guangzhou/Changsha) +86 20 2881 [email protected]

• Chuan Shi (Chengdu) +86 21 2228 [email protected]

• Clement Yuen (Shenzhen) +86 755 2502 [email protected]

• Joanne Su (Xi’an)+86 10 5815 [email protected]

• Patricia Xia (Hangzhou)+86 21 2228 [email protected]

• Andrew Chen (Nanjing)+86 21 2228 [email protected]

• David Chan (Hong Kong)+852 2629 [email protected]

• Heidi Liu (Taipei) +886 2275 [email protected]

• Kenneth Leung (Indirect Tax) +86 10 5815 3808 [email protected]

Sector Leaders

• Catherine Li (Financial Services) +86 10 5815 [email protected]

• Alan Lan (Energy & Resources)+86 10 5815 3389 [email protected]

• Martin Ngai (Technology, Media,Telecommunications) +86 10 5815 3231 [email protected]

• Vickie Tan (Life Science)+86 21 2228 [email protected]

• Gary Chan (Real Estate) +86 10 5815 2816 [email protected]

• Audrie Xia (Consumer Products)+86 21 2228 [email protected]

• Walter Tong (Automotive & Transportation)+86 21 2228 [email protected]

• Raymond Zhu (Government & Public Sector)+86 21 2228 [email protected]

• Henry Chan +86 10 5815 3397 [email protected]

• Andrew Choy (International Tax)+86 10 5815 [email protected]


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