Blog - Full Content with Sidebar

Register Your IPR with Chinese Customs – the Best Way to Stop Counterfeits

September 3, 2020

For each brand owner, counterfeiting is definitely a nightmare which will end neither quickly nor easily.

As we discussed in our previous blog post: IPR Infringement in China – Five Ways to Stop It, there are 5 different ways to enforce your rights in China. However, considering the requirement for evidence acceptable to a court, the threshold to initiate criminal or civil proceedings is actually pretty high, even to initiate an AIC raid has been proven to be rather difficult, too.

But still, we can do something to stop counterfeiting. Registering your IPRs with the Chinese customs is the best option. Why? Firstly, we have to understand that unlike in most countries, Chinese customs examine both imported and exported goods rather than only imported goods. Thus, by filing the IPRs with Chinese customs, the IPR owners notify Chinese customs of the legal status of their IPRs, and in the end，can stop counterfeits from leaving China to overseas markets.

Now, we are going to explain how the whole process works in detail.

1. Filing online

The whole filing procedure can be done online on the online registration system developed by the General Administration of Customs (GACC).

For the purpose of filing, IPR owners need to submit the following documents:

To stop counterfeits from being sold, registering your IPR with Chinese customs could be easier, better and efficient for overseas SMEs

a) The identification certificate of the IPR owner and a corresponding Chinese translation, meaning the passport if the IPR owner is an individual or the incorporation certificate if the owner is a company;

b) An IP certificate issued by a competent IPR administration in the PRC;

c) A power of attorney and the identification certificate of the agent, if any agent is hired;

The right owners can also submit a list of authorized users of the IPR, such as the OEM manufacture or licensee of their IPRs, so products using the IPRs legitimately can pass through customs without any problem. They can also submit the photos of their products and the packaging, to help the customs detect suspicious products easily.

What we want to point out here is, that for the documents listed in above under point b), IP certificates issued in any other country wont’t be sufficient. To proceed with the filing with Chinese customs, you have to file the IP application in China and get it granted from a competent IP authority first.

2. Timeframe

It may take the GACC at the most 30 days to approve the application, once all necessary documents have been submitted. The term of the filing could be the duration of the IP right or for a maximum period of ten years.

Since 1 November 2015, all IPR holders can file their IPRs with Chinese customs free of charge.

3. Detention of products

Once the filing has been completed and all necessary information is deposited on the internal IP database, it will be easier for customs to find suspicious products. Customs is authorized to detain any suspected infringing products and undertake investigations. They will ask the consignee or consignor of the products to make a declaration regarding the status of such goods. If the declaration is not satisfying, customs will immediately notify the IP rights holder.

The customs will make a final decision as to whether the goods infringe any IP Rights within 30 days. Custom authorities will then decide whether to detain or release the products, or dispose of the products otherwise.

Customs officials can also fine the consignee or consignor up to 30% of the value of the products. Of course, the IPR holder will not get any compensation from the above-mentioned procedure. The fine is just a punishment charged by the state not any kind of financial compensation to the right holder. However, the outcome of the investigation undertaken by customs could be used by the right holder as strong evidence to initiate a civil case to demand for ceasing of infringement and monetary compensation.

If the total value involved exceeds the limits provided under the Criminal Law of the PRC, customs will transfer the case to the local police to initiate a criminal procedure. The infringer could face imprisonment of up-to 7 years.

4. Our message

We agree that the best way to stop counterfeiting is to find the source of it and remove it completely. However, the giant profit derived from counterfeit distributions makes “removing it completely” nearly an impossible task: you just removed one here with tremendous effort, while soon enough, another one pops up there!

Maybe, to stop counterfeits from being sold is a better and more practical way, as opposed to “removing the source completely”. In our opinion, filing with Chinese customs is a cost-effective way to stop counterfeits from being sold in overseas markets. As long as you get your IP rights granted by Chinese IP authorities, you can proceed with the filing procedure right away. Compared to the time-consuming and costly way of acquiring evidence to initiate criminal and civil procedures, registering your IPR with Chinese customs could be easier, better and far more efficient for overseas SMEs.

counterfeit, filing with customs, IPR fringement, registering with Chinese customs

The Top Five Things You’ll Need to Do While Purchasing PPE

August 29, 2020

Last night, I got a call from one of our overseas clients. Though he greeted me nicely, I detected something unusual in his voice.

It turns out that he paid 1.5 million to a Chinese company to buy masks. 20 days had passed, the Chinese company kept providing all kinds of tracking numbers from different delivery companies and yet, he didn’t receive any face masks till today.

He explained, this company was introduced by an agent, with whom he has been connected for more than 20 years. The agent told them that the company is a very big state-owned company.

I told him that if he can provide me with the company’s name (in Chinese language), I can check if the company is legally incorporated in China. However, the business card he sent over is only in English, which is not a surprise to me at all.

Finally, I tried to ascertain the Chinese company’s name in a blurry seal on the proforma invoice, which has a long squared shape instead of a round one, which is the regular shape of a company’s seal in China.

And again, not surprising, I can’t find the company in the government’s database, which means that they are not legally incorporated and/or existing in China.

After I notified my client of the result, he remained silent for a while before he finally asked me a question, which I have been asked countless times in the past decade: “Is there a way you can get my money back?”

It’s a pity to say, but still I have to confess, that often a lawyer cannot do much once the money had been paid out.

As we mentioned on other occasions, no matter how lucrative a project seems to be, take your time do your homework, as always. Before you make the payment, ask yourself have you done the following properly?

1. Due diligence

Though the term “due diligence” is self-explanatory, we still want to emphasize its importance.

Please note that no matter how the sellers or brokers introduce themselves on their website or their flyers, you actually know nothing about them. You need to do your homework: ask them to provide you with the copy of their business license or their company name in Chinese, and check it on the government database: National Enterprise Credit Information Publicity System. If you know any Chinese or if you have any Chinese friends, you will find this very helpful. Or you may hire a PRC lawyer to do that. The main purpose of doing it is to make sure you are dealing with a legitimate company instead of a fraudster.

2. License

Even if this company is confirmed to be a legally incorporated company, you still have to make sure that they are authorized to manufacture/sell the PPE. Ask the seller to provide you with the following documents, such as:

a product qualification certificate;
a quality inspection report;
a medical device registration certificate;
a manufacture license etc.

If they are trade companies or brokers, ask them for the respective POA from the manufacturer to sell the PPE. Don’t worry that your demand would scare them off. Your seriousness will only scare off people who are trying to cheat you, but not any serious businessmen. Once you get these papers, again, check them on the official website: MINISTRY OF COMMERCE OF THE PEOPLE’S REPUBLIC OF CHINA or National Medical Products Administration for confirmation.

3. Destination

For PPE procurement, the most important thing is to make sure it meets the quality standards and other requirements in the destination country or area. Licenses for the sale of pharmaceuticals and medical devices in North America are FDA certifications, while a CE certification is a license to sell them in Europe. Therefore, it needs to be determined in accordance with the specific regulations in the particular country or area (in some countries, both CE and FDA certifications are required). For example, for N95 masks, many hospitals in the United States need the seller to provide an FDA certification, but also an 510K registration, as well as an NIOSH certification to procure N95 masks.

Before you make the payment or procure PPE, make sure you have done due diligence and prepare the purchase contract properly

4. Purchase agreement

Once you have gone through the above-mentioned procedures, then it might be the time to consider signing the purchase agreement. You may check our previous post: Tips on Preparing OEM Contract with China Factory for details.

5. QC before shipping

Despite all the above-mentioned efforts, you still have to undertake the quality inspection seriously, as PPE is crucial to people’s life, especially under the current situation. Our suggestion is: instead of doing QC after it arrives at the destination, do it before the shipment. The reason is simple: in international sourcing, all issues are more easily to be solved before you make the payment than after. If possible, do it during the manufacturing process and then once more before shipment. Why? Because the raw material is very important for the function of the PPE, you need to make sure the raw material and the process are up to required standards before the shipment instead of finding out that something went wrong in the last minute.

Fraud in international trade, PPE, source in China

Framework of Foreign Direct Investment Management for a New Era

August 23, 2020

On 1 January 2020, the <Foreign Investment Law of the People’s Republic of China> (hereinafter “FIL”) came into effect officially. Together with the <Implementation Regulations on the Foreign Investment Law of the People’s Republic of China>, the <Notice of the State Administration of Market Regulation on Implementation of the Foreign Investment Law for Proper Handling of Foreign Investment Enterprise Registration>, <Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Foreign Investment Law of the People’s Republic of China> and the <Measures on Reporting of Foreign Investment Information> etc., it has formed a new system for the management of foreign direct investment in China.

Meanwhile, just a couple of months before the official implementation of the FIL, legislation in related fields was quite active. Around the FIL, several governmental departments published a series of regulations related to foreign direct investment, which jointly built an open, upgraded foreign investment management system, such as improving the overall business environment, foreign exchange, intellectual property rights, dispute resolution etc.

The highlights of the new policies are as follows:

I. Market access

Presently, China is implementing a “pre-access national treatment” plus “negative list” management model in foreign investment market access, which means, foreign investors shall enjoy investment treatment no less than that of domestic investors for market access. Foreign investment in fields which are prohibited according to the negative lists is not allowed. Foreign investment in restricted fields are allowed, as long as certain requirements for equity percentages and nationalities of the senior management are met. For fields outside the negative list, foreign direct investment may participate in the same way as domestic investors.

Negative lists are widely used in managing foreign investment access internationally. Starting from 1 December 2015, the Chinese government has piloted a negative list system for market access in some areas, and has officially implemented a nation-wide negative list system for market access from 2018.

II. Simplifying the procedures for company incorporation

According to the <Notice of the State Administration of Market Regulation on Implementation of the Foreign Investment Law for Proper Handling of Foreign Investment Enterprise Registration>, the registration authority shall only conduct a formal examination of the relevant application materials. When the company is incorporated and/or needs to change any registered information later, the company shall enter the information through the online enterprise registration system and the national enterprise credit information publicity system, and the above-mentioned information shall be forwarded by the registration authority to the commerce authority, which shall hold the foreign investment information through the foreign investment information reporting system.

According to the <Regulation on the Optimization of Business Environment> promulgated by the State Council on 22. October 2019, China is implementing the reform called a “separation of permission from license” which means that permission for engaging in certain businesses shall not be used as a precondition for the registration of a company, except in specific fields prescribed by laws and regulations.

III. Foreign exchange management

According to <The opinions of the State Council on further making good use of foreign capital>, foreign-invested enterprises are encouraged to use their capital for domestic equity investment in accordance with the law.

<The Notice of the State Administration of Foreign Exchange on further promoting the facilitation of cross-border trade and investment> promulgated on 25 October 2019, also stipulates that “non-investment type of foreign-invested enterprises are allowed to invest in domestic equity with capital in accordance with the law, as long as the projects are credible，legal and do not violate the existing negative list.

According to FIL, China's is implementing a "pre-access national treatment" plus "negative list" management model in FDI management

IV. Intellectual property protection

<Opinions on Strengthening the Protection of Intellectual Property Rights> promulgated on 24 November 2019, provides for “accelerating the introduction of a punitive compensation system of infringement in the fields of patents and copyrights.” “The maximum statutory compensation for infringement shall be substantially increased, thus the intensity of damages increased. “

The Trademark Law amended on 23 April 2019 introduced a punitive compensation system. For example, if the malicious infringement of the right to exclusive use of trademarks is serious, the amount of compensation shall be increased to 1 to 5 times of the actual loss as opposed to just 1 to 3 times of the actual loss under the old law. In case the loss of the right holder, the income obtained by the infringer or the trademark license fee is difficult to calculate, the ceiling for the amount of compensation could be increased from the original 3 million yuan to 5 million yuan

In December 2018, the《Patent Law Amendment (Draft)》 also provides a punitive compensation system similar to the《Trademark Law》, for example, if the intentional infringement of patent rights is serious, the amount of compensation could be 1 to 5 times of the actual loss. In case the loss of the right holder, the income obtained by the infringer or the patent license fee is difficult to calculate, the court shall determine the amount of compensation according to the specific circumstances of the case. The ceiling for the amount of compensation could be increased from the original 1 million yuan to 5 million yuan.

Obviously, the above-mentioned provisions are not only applicable to foreign direct investment, but the increase in penalties for intellectual property infringements will undoubtedly help to further improve the foreign investment environment.

FIL, foreign investment law, IPR protection, Optimization of Business Environment, punitive compensation

Foreign Investment law and Corporate Governance

August 17, 2020

According to Article 42 of the <Foreign Investment Law of the PRC> and Article 44 of the <Implementation Regulations for the Foreign Investment Law of the PRC>, which came into effect on 1 January 2020, the organizations and structures of all existing foreign-invested enterprises established in accordance with the old foreign invested enterprise laws shall, within five years from the implementation of the Foreign Investment Law, be adjusted in accordance with the provisions of the <Partnership Enterprise Law of the PRC> and <Company Law of the PRC> (hereinafter “Company Law”) and the adjustment shall be filed accordingly. The adjustment we talk about here is mainly the adjustment of the corporate governance structure. For example, under the <Sino-foreign Joint Ventures law> (hereinafter “JV law”), the Board of Directors is not only the highest authority of the JV, but also the executive and supervisory body. However, according to the Company Law, the decision-making power, executive power and supervision power of the company shall be exercised by the shareholders’ meeting, the board of directors and the supervisory board respectively.

This post would like to take a joint venture enterprise as an example to explore how to undertake such adjustments.

As discussed before, the <JV law> and the <Implementing Regulations of the JV Law> provide for the Board of Directors of a JV to be the highest authority of the joint venture and to decide all major issues of the joint venture. The parties to the joint venture shall, through consultation, determine the number of directors appointed by each party. So, by appointing their respective directors to participate in the resolutions of the board of directors, the shareholders of the joint venture indirectly exercise the decision-making and management rights of the company.

According to the Foreign Investment Law and Company Law, decision-making power of the company shall be exercised by the shareholders' meeting

In addition, although shareholders of a joint venture may specify their rights and remedies in shareholder agreements, articles of association, etc., the Joint Venture Law does not provide for shareholders’ rights and remedies expressly. Once the initial articles of association are singed, the subsequent amendments and supplements will be decided by the board of directors, and the will of the shareholders will not be directly expressed.

On the other hand, the Company Law clearly stipulates that shareholders may exercise direct control, decision-making and management rights over the company through the shareholders’ meeting. The shareholders’ meeting is the authority of the company, the main functions and powers of which include determining the company’s operational strategies and investment plans, electing and replacing directors and supervisors who are not employees of the company, deciding on remuneration of the directors and supervisors, making resolutions to increase or decrease of the company’s registered capital, making resolutions on the company’s merger, division, dissolution or change of the company’s form, and amending the company’s articles of association etc. According to the Company Law, any resolutions made by the shareholders’ meeting on major issues of the company must be approved by shareholders representing more than two-thirds of the voting rights. It can be said that compared to the JV Law, current Company Law provides a better protection for shareholders’ rights and interests.

However, it is worth noting that, in general, the voting rights of the shareholders’ meeting depend on the proportion of shares held by shareholders, while the voting rights of the board of directors depend on the number of directors. According to the JV law, the decision of the board on important issues requires the unanimous consent of all directors present at the meeting. The minority shareholders of a joint venture may appoint directors to participate in the resolutions of the board of directors and veto the resolutions on major issues through the directors they appointed, in this perspective, you may say that the rights of the minority shareholders are better protected under the JV Law.

Article 43 of the <Company Law> stipulates: “The meeting of the shareholders of a limited liability company shall exercise their right to vote in proportion to the capital contribution, unless otherwise provided in the articles of association of the company.” Thus, minority shareholders may claim a veto on certain major issues at the shareholders’ meeting or the board of directors of the company and specify the veto accordingly in the articles of association.

Obviously, the adjustment and transformation of corporate governance structures is going to be a long and cumbersome process. Our suggestions are therefore as follows:

I. Amending articles of association.

To be undertaken in accordance with the provisions of the Company Law, the authorities of the shareholders’ meeting shall be separated from the powers of the board of directors and attributed to the shareholders’ meeting. At the same time, re-specify the scope of authority and resolution procedures of the shareholders’ meeting and the board of directors.

II. Reset the structure.

Set up the shareholders’ meeting of the company, then re-elect the board members to form a new board of directors.

III. Complete the registration.

Carry out the registration of the relevant changes in accordance with the specific provisions of the supervisory authority.

Useful link:

State Administration for Market Regulation

Corporate goverance, foreign investment law

The Top Six Questions Foreign Employees May Have

August 2, 2020

As a foreigner working in China, you may encounter all kinds of legal issues. We are here in presenting the top six frequently asked questions and provide answers below:

1. Q: Employees can’t terminate their employment contract, otherwise they have to pay a penalty, correct?

A：Incorrect, you can terminate the employment contract legally by sending a 30 day’s written notice without facing any penalty.

According to Article 37 of the《Labor Contract Law of the PRC》: “An employee may terminate their employment contract if he/she informs the employer in writing 30 days in advance. During the probation period, an employee may terminate their employment contract if he/she informs the employer three days in advance.”

Furthermore, according to related laws, the employer can’t ask employees to pay any penalty, unless:

1. the employer has paid training fee for employee and the employee wants to leave before the agreed employment term is finished. Or

2. the employee failed to abide by a non-compete agreement.

read through the employment contract before you sign it and make sure you understand each provision and make sure each of them is in line with the applicable labor laws

However, if the employment contract provides that the employee has to pay any direct loss the employer suffers because of their earlier termination, some of the arbitrators or judges may claim the provisions are reasonable and would agree in favor of the employer, such as the recruitment fee, visa fee, etc.

A: Incorrect. Though the employees are required to inform the employer of their intention to resign in writing 30 days in advance, they don’t need approval from the employer to resign.

On the other side, according to Article 50 of the 《Labor Contract Law of the PRC》: “When terminating an employment contract, the employer shall issue a certification for the discharge or termination of the employment contract simultaneously and shall complete the procedures for the transfer of the worker’s archives and social security relationship within 15 days.”

2. Q: My employer refuse to provide me with the release letter as they claim they won’t accept my resignation.

Article 89 of the《Labor Contract Law of the PRC》also specifies: “Where any employer is in violation of this Law because of failing to issue a certificate in written form for the discharge or termination of an employment contract to any employee, the labor administrative department shall order the employer to make a correction. If any damage occurs to the employee, the employer shall bear the liability for compensation.”

In conclusion, it’s the employer’s statutory duty to provide the employees release letters and help to cancel their work permits, so they can apply for new work permits in time.

3. Q: My employer told me that I can’t participate in the social security plan, as I am a foreigner. The social security plan is only available to Chinese people.

A: It’s incorrect. Foreigners are required to participate in the social security plan, as long as they are working legally in China.

Article 72 of the 《Labor Law of the PRC》specifies: “The employers and employees must participate in social insurance and pay social insurance premiums in accordance with the law.”

In addition, Article 4 of 《Interim Measures for the Participation in Social Insurance of Foreigners Employed in China》specifies: “An employer hiring foreigners shall conduct social insurance registration for the foreigners concerned within 30 days from the date of completing the formalities for employment certificates for them.”

4. Q: The employer said they will hold my passport or work permit for management purposes, is it ok?

A: No, it’s not OK at all, either the passport or the work permit is your personal identity card, no one is entitled to keep them. Article 9 of the《Labor Contract Law of the PRC》has made it very clear: “Where an employee is hired, the employer may not detain the identity card or other certificates thereof, nor may it require a guaranty or collect property from the worker under any other reason.”

5. Q: How can I make sure my employer has paid individual income tax for me properly?

A: According to related tax laws, employers are the withholding agents for individual income tax of their employees. It means that the employers shall deduct the individual income tax in line with the law before they pay salary (after tax) to the employees. The good thing is, each taxpayer can check their tax record at the local tax bureau. You may take your original passport and pay a visit to the tax bureau in the district where your employer is located in and have your tax record printed out.

6. Q: I find that many of the provisions in my employment contract are not in line with the labor laws, and the employer said the signed contract is binding. What can I do?

A: Generally speaking, a signed contract is binding, but this necessitates that its provisions are legal. So, if the provisions in your employment contract are illegal or not in line with related laws, the provisions or even the employment contract is not valid, thus is not binding at all.

However, despite the fact that the provisions in the labor laws are very detailed, still there are some options for both of the party. So, our suggestion is: read through the employment contract before you sign it and make sure you understand each provision and make sure each of them is in line with the applicable labor laws. You can also check our blog for more information, such as: What are the Rights of Employee in China? or Female employee rights in China

foreign employees, working in China

How to Protect the Software I Developed?

July 21, 2020

No one can deny that the 21^st century is the era of the IT industry. There, a startup can become a unicorn in just a couple of years. No wonder that it has already been proclaimed that “software is eating the world”. Did you know for example that the world’s biggest bookstore, Amazon, is actually a software company? Compared to traditional industries, the speed of wealth accumulation in digital industries is amazing. The main reason for an IT company to become successful is that they developed great software. Needless to say that, software is very important for such a company.

This begs the question: how to protect the software I developed?

Generally speaking，there are two kinds of protections provided by law, one is a software patent, and the other one is software copyright. A software patent is a way to protect the design ideas of software by applying for a patent instead of protecting the software itself. On the other hand, a software copyright refers to all the exclusive rights to the software as being an original creation which, the developers or other right holders may enjoy in accordance with the provisions of relevant copyright laws.

Then what’s the differences between these two intellectual property rights (IPRs. You may check our post: Ten Points You Need to Know about China’s IPR System to know more）Let’s take a look:

I. The law is different

If people want to obtain full protection of their software, it is recommended that both patent and copyright should be filed

《Copyright Law》and《Regulations on the Protection of Computer Software》provide protection over software copyrights. A software copyright comes automatically into existence upon completion of a software development. However, the developer may choose to register the software copyright. The purpose of the registration is to rely on some kind of notarization, which could be used to declare copyright ownership, thus to have a more powerful probative force for subsequent infringement proceedings.
《Patent Law》provides protection over software patent. Software patents are protected passively, meaning the inventor must apply with the Patent Office to obtain protection if software patent is granted. Besides, the whole patent system is based on the principle of “open to public (in exchange) for protection”.

II. Success rate

For software copyright registration, as long as the form of the material submitted is in line with the requirements and does not violate the provisions of the Copyright Law, registration will be granted without going through a substantive review.

However, the application for a software patent is relatively complex, as it must go through a substantive review, that is, to examine whether the application meets the requirements of the Patent Law, such as novelty, creativity, practicality etc. Generally speaking, the success rate for a software patent to be granted is comparatively low.

III. Term and renewal costs

For a software copyright, the IP right holders only have to pay the application fee, no annual fee needs to be paid to maintain it. According to the applicable law, the copyright protection period for an individual’s work shall be the author’s lifetime plus 50 years after his death, and the copyright protection period for work of legal person or other organization shall be 50 years.

For a software patent, apart from the application fee, an annual fee shall be paid to maintain it. Failure to pay the annual fee before the respective deadline shall be considered as giving up the patent right. The protection period for a software patent shall be 20 years.

IV. Pros & cons

Software copyright can be protected without being publicized, and can be granted very soon.

Generally speaking, it takes 4 months to have a general registration being authorized，but it may take only one business day for an expedited application.

However, a software patent must be open to the public before obtaining protection. The time for application to be granted is around 2 years, and generally speaking, an expedited application is not possible. The good point with a software patent is that it provides protection over the design concept and idea, so the protection is stronger in this respect. Meanwhile, the inventor can propose some idea which can’t be achieved currently. Once the patent was granted, the inventor can then obtain income by licensing it. Actually, many large companies commercialize their patent reserves in this way.

V. The protection is different

To apply for registration of a software copyright, the source code and user operating manual should be submitted. In another words, protection for software copyright focuses on the form of expression instead of the idea. It makes it possible for competitors to research the software and then change the programming language to achieve the same result. However, you can’t claim copyright infringement, because the code is different.

While for a software patent application, it’s the design concept (including the content of the software flow chart) to be submitted, rather than the program language implementing the concept. Once the patent is granted, other people adopting the design idea or scheme of the software patent may constitute an infringement. Thus, a patent provides a more powerful protection.

Our suggestion: if people want to obtain full protection of their software, it is highly recommended that both patent and copyright should be filed to reduce the risk of being infringed. It is also important to note that software applications for patents can only be applied for if the software amounts to an invention.

Tax boost for Hainan FTP

July 1, 2020

On 30 June 2020, the Ministry of Finance together with the State Taxation Administration released the <Circular about Preferential Enterprise Income Tax Policy for Hainan Free Trade Port>, and the <Circular about Individual Income Tax Policy for High-end and Urgently Needed Talents at Hainan Free Trade Port>. The two circulars will be implemented from January 1, 2020 until December 31, 2024. ( You may check our previous post: Breaking news! Master Plan Unveiled for the Construction of Hainan’s New Free Trade Port for more news about the Hainan Free Trade Port. )

On 30 June 2020, Chinese central government released the <Circular about Preferential Enterprise Income Tax Policy for Hainan Free Trade Port>

According to the circulars, for high-end and urgently needed talents working at the Hainan Free Trade Port, the individual income tax rate is capped at 15%, meaning the portion of the actual tax burden of individual income tax exceeding 15% shall be exempted.

The income referred to in the above-mentioned preferential policies includes the comprehensive income derived from Hainan’s Free Trade Port (including wages and salaries, labor remuneration, copyright remuneration, royalties), operating income and the subsidized income of talents recognized by Hainan Province.

For companies that are registered at the Hainan Free Trade Port and operate the business substantially from this location, the corporation tax is reduced to 15%. Income on additional overseas direct investments by companies in tourism, modern services, or the high-tech sector will be exempted from corporation tax altogether.

Useful Link:

Ministry of Finance of the People’s Republic of China

Newly Released Negative List

June 29, 2020

On 23 June 2020, the National Development and Reform Commission and the Ministry of Commerce released the <Special Administrative Measures (Negative List) for the Access of Foreign Investment (2020)> (“Negative List”). According to the Negative List, from 23 July 2020 onward, the restrictions on foreign investments in securities, futures, life insurance, commercial vehicle manufacturing, and the construction and operation of water supplies and drainage networks in cities with a population of more than 500,000 shall be lifted.

This amendment further reduces the negative list of foreign investment access. This is the fourth consecutive year that China has revised the negative list with regards to foreign direct investment in the country since 2017.

Compared to the 2019 edition, the restriction on the Negative List of 2020 have been reduced from 40 to 33. The level of openness in the services, manufacturing and agricultural sectors has been further improved.

Restriction on the Negative List of 2020 have been reduced, the level of openness in the services, manufacturing and agricultural sectors has been improved.

The highlights are as follows:

1. Accelerating the process of opening up key services areas:

In the financial sector, China will scrap foreign shareholder limits in securities companies, fund houses, futures companies and life insurance firms. ( For more information about more opening up in this sector, please visit our previous post: China-More Opening-up in Financial Sector )

In the infrastructure sector, the requirement that the construction and operation of water supply and drainage networks in cities with a population of more than 500,000 must be controlled by Chinese investors shall be removed.

2. Easing market access restriction in manufacturing and agriculture sectors:

In the manufacturing sector, liberalize the restrictions on foreign-funded share ratios in the manufacture of commercial vehicles and scrap a ban on foreign investments into companies that smelt and process radioactive resources and produce nuclear fuel.

In the agricultural sector, for the selection and seed production of new wheat varieties, a majority Chinese shareholder is not required anymore, as long as Chinese shareholders own not fewer than 34% of the equity.

On the same day, the <Special Administrative Measures (Negative List) for the Access of Foreign Investment in Pilot Free Trade Zones (2020)> was released too, the entries in the Negative List were also reduced from 37 to 30.

According to the amended Negative List, In the medicine sector, the prohibition of foreign investments into Chinese medicine have been removed. In the education sector, wholly foreign-owned vocational education institutions are allowed to be established.

Link to the original list:

Special Administrative Measures (Negative List) for the Access of Foreign Investment (2020)

Special Administrative Measures (Negative List) for the Access of Foreign Investment in Pilot Free Trade Zones (2020)

foreign direct investment, foreign investment law, free trade zone, negative list