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Work Permit for Foreigners

January 24, 2019

Generally speaking, expats need to get an Work Permit to work in China, unless they hold a Foreign Expert Certificate. Enterprises must apply for an Employment License after submitting the necessary documents such as resumes, qualification certificates and health certificates. This is true even if the expatriate is the owner of the enterprise, such as a WOFE.

Work Permit is the document expats would need for working in China legally

Once an Employment License is issued, expatriates should apply for a Z visa (i.e. vocational visa in China) and then an Work Permit. Afterwards, foreigners should apply to the local public security authority for Residence Permits. With an Work Permit and Residence Permit issued, the expats can finally stay and work in China legitimately.

However, the Chief representative or representative of an overseas entity can apply for Work Permits directly, without first applying for Work Permit, just submitting their Z visa and the RO registration certificate.

According to related PRC regulations, the Employer shall complete an annual inspection of the Work Permit within 30 days before the expiration of the employment contract. Otherwise, the Work Permit will automatically expire.

Additionally, if the expat changes their employer or extends their employment term without permission, the labor administrative authority can withdraw their Work Permit and the public security authority could deprive their residence qualification too.

Another thing to know about the Work Permit is, it’s the prerequisite for an expat to work in China legitimately. It is illegal for foreigners to work without Work Permits, so they are not protected by law.

What does that mean?

Let’s put it this way-most expats know employment contracts are very important to protect themselves. However, few expats know that Work Permits are equally important. Without an Work Permit, the employment contract is meaningless. The employer could terminate the employment contract as they wish without paying any severance pay. The expats can only get remuneration for his/her job as specified in the contract, but they can’t get any compensation like their Chinese colleagues. This includes injuries during work that can’t be claimed for industrial injury compensation, or compensation if the employment contract expires, generally one month’s salary for each year when he/she works for the employer.

Useful links:

The Ministry of Public Security of the People’s Republic of China

Employment Permit, Labor law, Z visa

Tax Reduction in China-More Details

January 22, 2019

On 18th of Jan, 2019, the General Taxation Administration and Ministry of Finance of PRC jointly announced an Notice on Implementing Inclusive Tax Relief Policies for Small and Micro-profit enterprises, following the tax reduction statement released after the State Council executive meeting on Jan 9, 2019. Over the past two days, the two government departments have made more explanations regarding to implementation of the policy.

Generally speaking, the circular and related explanations are as follows:

1. Tax-exemption

If monthly sales of a small-scale VAT taxpayer is no more than 100,000 yuan, it will be exempted from VAT.

2. Tax-reduction

The current enterprise income tax ( EIT ) is 20%, however, according to the new policy:

If annual taxable income of a small and micro-profit enterprise is no more than 1 million yuan, EIT will be charged on 25% of the taxable income, that is, the actual tax rate is 5%;

If annual taxable income of a small and micro-profit enterprise is more than 1 million yuan but no more than 3 million yuan, EIT will be charged on 50% of the taxable income, that is, the actual tax rate is 10%.

The small and micro-profit enterprises mentioned above refer to enterprises engaged in the non-restricted and prohibited trades of the state, and meanwhile, meet the following three conditions:

1. the annual taxable income is no more than 3 million yuan;

2. the number of employees is no more than 300 people, including the number of worker who have established labor relationship with the enterprise and the number of labor dispatched to the enterprise;

3. the total assets is no more than 50 million yuan.

According to another explanation given by the Tax agency, the enterprise could declare their own reduced concessions without providing additional information.

And it’s also stated that this preferential tax policy will be effective since 1st of Jan, 2019 till 31th of Dec, 2021. And it will be applicable to all small and micro-profit enterprises, no matter in what way the tax is collected

Useful link:

State Taxation Administration

income tax, tax reduction, VAT

Why Is a Business License so Important in China?

January 16, 2019

Each time, when my clients complain to me about their disputes with Chinese entities, I will ask them: “Could you show me the copy of their business license?” This is because I know that few of them can tell their counterparty’s Chinese name.

business license tells very important information about a entity

Unfortunately, less than half of the clients could provide a valid business license. Instead, they would ask: “What do you mean by business license? Why do I need it? ” Or “ Sorry, I have no such things. But I have their business cards, website and all our correspondence via email. ”

In my experience, these websites, business cards and the signature line in an email sometimes tell nothing about the true identity of people behind them. However, a business license does the job.

Why is a Business License so important?

A Business License is a certificate of company’s identity issued by the local AIC (Administration of Industry and Commerce，the corporate registration and management authority in China), just like a certificate of incorporation is in some jurisdictions. A Business License provides basic information of an entity，including:

registration number,
name and domicile of the entity,
name of the legal representative (the individual who represents the entity and is authorized to sign contract on behalf of the entity),
registered capital,
type of entity (if it’s a limited liability company or any other),
business scope (type of business allowed to do, such as trading, consultancy, etc.),
date of incorporation, etc.

So, from a business license, we can tell if this entity is legally incorporated. Through the information in the business license, we can find further information, such as if this company still exists, is the company in any disputes or proceedings, or involved in other abnormal situations. All this can be done by searching in the government database (which is free of charge) or in some paid database.

In China, when people are discussing a deal, both parties will exchange their business licenses, or at least show each other a duplicate copy of the business license. So they will know each others identity, and can do some due diligence later.

However, all websites, business cards or emails are not something issued by the government. It could tell totally false information, or even worse, no such entity could exist at all!

Besides, all these information on the website, the business cards or the signature line in the email are in English. In China, all official documents regarding any resident or entity is in Chinese. No matter what the Chinese entity calls themselves in English, it’s not official. You can never locate a Chinese individual or entity by an English name. So, in any case, you should insist on a copy of their business license.

If the Chinese entity cannot present a business license, then you are probably dealing with a fraud. If the information the Chinese entity provides you does not match up with whatever is stated in the business license, then you are probably dealing with a fraud too.

Of course, it’s not easy for a foreigner to do the check, even if the Chinese entity provides their business license. You may wish to hire an English-speaking local lawyer to do it. It’s a very simple due diligence, but very important.

Useful Link:

State Administration for Market Regulation

business license, China business rule, company law

Tax Deduction for IIT-More Details

January 16, 2019

In our previous post about IIT, we mentioned there is six items of special additional tax deductions which could be deducted from the taxpayer’s income, that is: children’s education, continuing education, medical treatment for serious diseases, housing loan interest, house rent, and support for the elderly.

Now let’s see more details:

1. children’s education

RMB 1,000 per month for each kid could be deducted, if the kid is accepting pre-school education or full-time education for academic qualification. It means from the age of three till the kid finishes his/her higher education (including junior college, undergraduate, postgraduate and doctoral education), 1000 RMB could be deducted from the taxpayer’s income or 500 RMB from the husband and wife’s perspective income for each kid.

2. Continuing Education

If a taxpayer is accepting continuing education himself/herself for academic qualification (degree) within China, RMB 400 shall be deducted per month.

3. Medical Treatment for Serious Diseases

If the accumulated amount a taxpayer has to pay by himself in a year exceeds RMB15,000, the portion above 15000RMB could be deducted, with a limit of no more than RMB80000.

For example, suppose a taxpayer has spent RMB 300000 for his medical treatment, RMB180000 of which could be reimbursed by medical insurance fund. He has to pay RMB120000 himself. For the portion of RMB105000, as more as RMB80000 could be deducted.

4. Housing Loan Interest

RMB1,000 could be deducted if a taxpayer is paying loan interest for purchasing his first residence, as long as the loan interest is actually incurred. However, the longest term for the deduction could not exceed 20 years.

six items of special additional tax deductions could be deducted from the taxpayer’s income,

5. Rent

The exact amount could be deducted vary from city to city

(1) In Beijing, Shanghai, Tianjin, or capital city of a province, or Dalian, Qingdao, Ningbo, Xiamen and Shenzhen etc., it’s 1500RMB per month；

(2) Except the above-mentioned city, if the population who have local “Hukou” in a city exceeds 1 million, it’s 1100RMB per month

(3) if the population who have local “Hukou” in a city is less than 1 million, it’s 800RMB per month.

6. Support for parents

(1) If the taxpayer is the only child of his parents, RMB2,000 could be deducted per month;
(2) If the taxpayer is not the only child, the quota of RMB2,000 shall be shared among he/she and his/her siblings. For each person, the share could not exceeding RMB1,000 per month.

Still confused about tax deduction? Please feel free to contact us for further clarification.

Useful link:

State Taxation Administration

IIT, Tax, tax deduction

WFOE Formation in China—Simplified Now

January 14, 2019

As we mentioned in our previous blog: Wholly Foreign Owned Entity- WFOE formation in China is more simpler, easier and faster now. The following aspects have changed.

1 ) No more minimum registered capital requirement.

Actually, there has been no minimum registered capital requirement for company formation since 2014，as the new Company Law of PRC specifies.

For companies invested in by Chinese, no more minimum registered capital is required. However in reality, minimum registered capital is still required by the local authority for WFOE formation. Actually, it’s not something unusual in China. It’s not something unusual in China, since local authorities would rather wait until more detailed instructions are given out each time a new law becomes effective.

Yet in 2018, we found that minimum registered capital is not required even for WFOE formation. There is also no more deadline for capital injection, the period for capital injection could be as long as the duration of the WFOE.

2）No more pre-approval-for general WFOE

Another headache for overseas investors is applying for pre-approval with the local commerce administration before applying for setting up the WFOE with the local AIC. To get the pre-approval, the investors are required to submit articles of association, feasibility reports, etc. Sometimes it may take 3 months or even longer to get this pre-approval.

However, as of the 30^thof June, 2018, pre-approval is not required anymore, as long as the business involved is not listed in Notes on Special Management Measures for the Market Entry of Foreign Investment (also referred as the “Negative List”) .

After the business license is issued by the local AIC, overseas investors can carry out the record-filing procedure online by submitting related information via the “Comprehensive Management System” supervised by the Ministry of Commerce. Usually, a record-filing acknowledgement will be issued within three business days.

According to this Negative List, most business engaged by overseas SMEs is open to foreign investors and shall be managed according to the principle of “equal treatment of domestic and foreign investment”.

Besides, other procedures are also simplified, such as registration with State Administration of Foreign Exchange （SAFE）, which could be finished while opening the bank account. In some cities, the presence of the legal representative is not required any more to open the bank account, as long as the original passport of the legal representative is presented.

Of course, though the overall procedure is simplified, particular requirements vary from city to city. You may wish to contact us for specific information before you make any plans.

Useful link:

State Administration for Market Regulation

negative list, WFOE, WFOE formation

Tax in china – Reduction in 2019!

January 12, 2019

To encourage the development of small and micro-profit enterprises, the Business Tax in China is also undergoing positive reforms. In this regard this year china has decided to roll out a new batch of tax-reduction policies. Related to this, a statement was released after the State Council executive meeting on Jan 9, 2019.

These policies include:

1. Substantial drops in China business income tax:

1) The rate for those enterprises whose annual taxable income does not exceed 1 million yuan, is reduced to 25% of original rate (20%). Therefore the actual tax rate will be 5%.

2) The rate for those enterprises whose annual taxable income falls between 1 million yuan to 3 million yuan, is reduced to 50% of original one. Hence the actual tax rate will be 10%.

2. A considerable increase in the China tax threshold：

For small-scale taxpayers ( including small and micro-profit enterprises etc.), the value-added tax (VAT) threshold will be increased from 30,000 yuan to 100,000 yuan in monthly sales. In this way, VAT will only be charged on the portion of monthly revenue which is above 100,000 yuan.

3. China to allow local government to impose a reduction in local taxes and fees within 50% ranges.

Also, it is said the above-mentioned tax reduction policy will be tentatively valid for three years. But implementing rules haven’t been given out by related authorities yet.

Besides, another noteworthy situation is: it was stated that all social insurances premium shall be collected by tax authority as of 1st of Jan, 2019, and fine for not paying or not pay in full of social insurance premium will be levied strictly according to law as early as August, 2018. Such statement has caused extensive panic among enterprises which are worried about sever penalty. However, according to resources from some provinces, only the pension for residents and public institutions employees will be collected by tax authority, collection of pension for enterprises employees will maintain the status quo for the time being.

Useful link:

State Taxation Administration

, Tax

Two Ways of Trademark Registration in China

January 7, 2019

1. Trademark registration, international way vs national way

For overseas applicant, there are two ways to do trademark registration in China.

China is a party to World Intellectual Property Organization (WIPO). So companies can submit trademark application to the WIPO International Bureau through the office of origin. This application will go through formal examination by the Bureau and then substantive examination by China’s Trademark Office (CTMO). Here the overseas applicant may extent their application to China under the Madrid Protocol. That is called International way.

On the other hand a Chinese trademark agent can be hired to apply for trademark directly with CTMO. In this way you get a Certificate of Trademark granted directly by CTMO. That is called the national way. For more information, you may check our post: Trademark Registration in China – Procedure

2. What’s the differences between these two ways?

Technically, national or international way, are just different channels for application filing. Thus, the differences are mostly procedural. Eventually, both ways follow the same examination standard based on China’s trademark laws and regulations. And more importantly, the substantive rights granted are the same. Both way are valid for ten years and can be prolonged for a subsequent 10-years protection period.

3. Trademark registration in national way is more convenient

However, for practical reasons you may wish to apply through the national system.

Firstly, application through national system usually is faster. The time limit for international way is 12-18 months from the date of international notification. This usually will be granted in 6 months after submission of the application. Hence, totally one and half to two years; while it’s one and half year for national way.

Secondly, if you use the international system, you will get the certificate issued directly by the WIPO, which is in English or French.

However, as administrative authorities and courts in China will ask for a Chinese language document as proof of your right. If you want to enforce your rights or help to speed up proceedings when dealing with local authorities, you need to obtain such certificate from the CTMO to certify your right. Usually it may take three months or longer and don’t be surprised if it takes more. CTMO once suspended issuing trademark certificates for 7 months just because they used up their paper!

Another problem is, sometime some local agency or institution only know about the certificate issued by CTMO (granted through national way), with the national emblem of PRC on the top of the paper. It really takes some time and effort to convince them that your document are also officially recognized and enjoy the same right, as one of my clients once experienced.

Useful link:

TRADEMARK OFFICE OF NATIONAL INTELLECTUAL PROPERTY ADMINISTRATION, PRC

international way of trademark registration, trademark registation

IIT in China, Rumors and Solutions…

January 6, 2019

It’s 2019 now. Discussion over the new IIT law is still ongoing and all kinds of rumors could be heard.

IIT is always a complicated issue around the world and tax planning is very important!

One rumor says that “banks will report any expat account with a balance over 5000RMB”. It’s really absurd, in my opinion. Obviously, the source mixed the updated IIT threshold (5000RMB) with an unupdated regulation- Administrative Measures for the Reporting of Large-sum Transactions and Suspicious Transactions by Financial Institutions, which actually came into effect as recently as July 1, 2017, but was extensively discussed later last year.

So, relax. First, there were related measures back in 2006, so it’s nothing new.

Second, anti-money laundering and anti-terrorism is the main purpose, as stated in article 1 of the Measures.

Then what does it say exactly?

A financial institution shall report the following large-sum transactions:

(1) Cash

cash deposits, cash withdrawals, foreign exchange settlements and sales in cash, exchange of foreign currencies in cash, cash remittance, payment of cash bills and other forms of cash receipts and payments whose transaction value reaches or exceeds RMB 50,000 or foreign currency equivalent of USD 10,000 on a per-transaction or cumulative basis on a given day;

(2) Fund transfers

whose transaction value reaches or exceeds RMB two million or foreign currency equivalent of USD 200,000 on a per-transaction or cumulative basis between the bank account of a client that is not a natural person and another bank account on a given day;

(3) Domestic fund transfers

whose transaction value reaches or exceeds RMB 500,000 or foreign currency equivalent of USD 100,000 on a per-transaction or cumulative basis between the bank account of a natural person client and another bank account on a given day; and

(4) Cross-border fund transfers

whose transaction value reaches or exceeds RMB 200,000 or foreign currency equivalent of USD 10,000 on a per-transaction or cumulative basis between the bank account of a natural person client and another bank account on a given day.

Cumulative transaction value shall be calculated and reported on a per-client basis by unilaterally adding up the receipt or payment of funds.

I have clarified this already, and it does have something to do with IIT.

As part of the efforts of tax agencies to strengthen their taxation management, they will use data from financial institutions to do so in near future. Actually, people have been caught by the tax agency when they use their personal bank account to receive payments from their company account and heavy fines have been charged.

So my suggestion is: if you are doing business in China as an individual, it’s time to consider setting up a WOFE now. Everyone can see expenses exempted from an individual income is too limited, while any reasonable expenses can be treated as the cost of company operation, as long as Fapiao are provided.

The threshold for incorporating a WFOE is pretty low today. There is no more deadline for fund input, no more minimum capital requirement, no more month long pre-permission from the Ministry of Commerce of PRC, and in some city such as Guangzhou, you can share office with other people… as long as you can provide a legitimate ID, it may takes ten days to get your license ready! You don’t even have to authenticate your passport in the embassy in your home country if there is a China entry record in your passport.

What do you think?

Useful link:

MINISTRY OF COMMERCE OF THE PEOPLE’S REPUBLIC OF CHINA

company, IIT, Tax

Work Permit for Foreigners

Tax Reduction in China-More Details

1. Tax-exemption

2. Tax-reduction

Why Is a Business License so Important in China?

Tax Deduction for IIT-More Details

1. children’s education

2. Continuing Education

3. Medical Treatment for Serious Diseases

4. Housing Loan Interest

5. Rent

6. Support for parents

WFOE Formation in China—Simplified Now

1 ) No more minimum registered capital requirement.

2）No more pre-approval-for general WFOE

Two Ways of Trademark Registration in China

1. Trademark registration, international way vs national way

2. What’s the differences between these two ways?

3. Trademark registration in national way is more convenient

IIT in China, Rumors and Solutions…

(1) Cash

(2) Fund transfers

(3) Domestic fund transfers

(4) Cross-border fund transfers

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