The revised Company Law mandates that shareholders of limited liability companies (LLCs) must fulfill their capital subscription obligations within five years from the date of the company’s formation. This law is scheduled to be enacted on July 1, 2024. Consequently, any LLCs founded after this date will be obliged to adhere to the new subscribed capital regulations. For LLCs established prior to the implementation of the revised Company Law and whose capital contribution schedules extend beyond the stipulated five-year limit, a transitional phase will be implemented. This phase is designed to allow these pre-existing companies to incrementally adjust their capital payment schedules to comply with the new mandate.

 

Adjustment Measures for the Contribution Period of Existing Companies：

 

• Companies established before July 1, 2024, can, during a three-year transition period (from July 1, 2024, to June 30, 2027), change their subscription period to within five years, with the capital contribution to be completed by June 30, 2032, at the latest;

• For limited liability companies, if the remaining subscribed contribution period is less than five years by July 1, 2027, there is no need to adjust the contribution period further;

• Joint-stock companies can fulfill the payment of their subscribed shares before June 30, 2027.

 

Therefore, existing company shareholders need to review the company’s registered capital thoroughly：

 

• If it cannot be fully paid within five years, they should timely initiate a capital reduction procedure to decrease the registered capital;

• If it is confirmed that the registered capital cannot be paid by the due date and another company is interested in the acquisition, consider transferring ownership through a change in equity;

• If the company has no actual business operations, it can proceed with its dissolution.

 

Should you have any questions about company registration, registered capital, company deregistration, etc. Please contact our expert team for further discussion.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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According to the official news, the changes were intended to promote responsible shareholder behavior and contribute to a more robust business environment. Below are some key highlights of these amendments:

Full Payment of Registered Capital within Five Years

 

A notable amendment in the law is the obligation for shareholders of a limited liability company (LLC) to fully contribute to the company’s registered capital within five years from the date of the LLC’s establishment, as per their subscription agreement. Moreover, the board of directors can issue notices of deprivation to shareholders who still need to fulfill their capital contribution obligations within the prescribed time frame. Shareholders who disagree with the deprivation notice have 30 days from the receipt of the notice to file a lawsuit with the People’s Court.

Shareholders of Chinese companies need to review these changes and begin meticulous preparations for their implementation. Investors planning to establish a company in China should consider the revised regulations regarding capital contributions.

The scope of the application includes not only newly established companies but also existing companies. Therefore, existing company shareholders need to review the company’s registered capital thoroughly：

• If it cannot be fully paid within five years, they should timely initiate a capital reduction procedure to decrease the registered capital.
• If it is confirmed that the registered capital cannot be paid by the due date and another company is interested in the acquisition, consider transferring ownership through a change in equity.
• If the company has no actual business operations, it can proceed with its dissolution.

 

No Mandatory Supervisor Required

 

The revised Company Law permits companies to establish only a board of directors without a board of supervisors. Companies that only set up a board of directors should establish an audit committee under the board to exercise the powers of the board of supervisors.

The Company Law further simplifies the organizational structure of companies. For companies that are smaller in scale or have fewer shareholders, it is possible to appoint a single director, and instead of setting up a board of supervisors, appoint a single supervisor. It is permissible not to appoint a supervisor for smaller LLC or those with fewer shareholders, with the unanimous consent of all shareholders.

 

Optimize the Company Registration and Deregistration Regulations

 

A new chapter on company registration is added, specifying the matters and procedures for company registration, change registration, and deregistration.

• Clarify the legal validity of electronic business licenses, announcements made through the national enterprise credit information publicity system, and resolutions passed via electronic communication methods in meetings.
• The scope of capital contribution has been expanded to include two types of non-monetary assets: equity and debt.
• Relaxes the restrictions on establishing single-shareholder LLC and permits forming single-shareholder joint-stock companies.
• Improves the company liquidation system, reinforcing the obligations and responsibilities of the liquidators and liquidation committee members.
• If a company has not incurred any debts during its existence or has settled all its debts, it can cancel its company registration through a simplified procedure with the commitment of all shareholders.

 

The latest updates to the Company Law introduce a variety of new regulations designed to streamline the company investments and finance, while also improving corporate governance. These updates will be discussed in more detail in our upcoming articles.

Should you have any questions about company registration, registered capital, company deregistration, etc. Please contact our expert team for further discussion.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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The main components of China’s data security legal framework include laws such as the Cybersecurity Law, Data Security Law, and Personal Information Protection Law. Addressing cross-border data flow, China has also introduced regulatory documents such as the Measures for Security Assessment of Cross-Border Data Transfer, Provisions on Standard Contracts for Cross-Border Transfer of Personal Information, and relevant guidelines. These collectively establish a regulatory mechanism for overseeing data outbound from China.

 

Data Compliance Challenges for Foreign Companies in China

 

Navigating data compliance consistently presents a major legal challenge for foreign-backed businesses in China. These challenges have become even more pronounced in today’s complex global socio-political and economic environment.

 

Many foreign entities encounter compliance complexities due to the distinct landscape of China’s data regulations and oversight. This includes：

 

• Inability to ascertain compliance with data regulations；

• Lack of understanding regarding the types of data being collected and processed, particularly the concept of “important data”；

• Uncertainty about regulatory agencies, requirements, methods, and standards for data governance；

• Absence of documentation, systems, and procedures for data management；

• Confusion regarding cross-border data processing；

• Uncertainty about efficiently and cost-effectively conducting compliance management, particularly for small and medium-sized enterprises.

 

Prior to engaging our services, the client lacked a foundation in data compliance, impeding their ability to accurately gauge potential risks. Their concerns extended to discerning data categories processed by the company, verifying the presence of critical data, formulating internal data protection frameworks, and ensuring the lawfulness and compliance of ongoing data processing activities.

 

Integra Provides Data Compliance Solutions

 

Upon receiving the client’s commission, Integra’s compliance task force swiftly acclimated to the client’s requirements, leveraging internationally recognized data governance methodologies. Key tasks include:

 

• Comprehensive due diligence to comprehend the company’s operations and requisites

• Systematic data categorization and inventory management, facilitating structured data lists

• Cultivating employee compliance awareness through training sessions and addressing pertinent queries

• Development and implementation of robust data compliance systems and protocols

• Preparation of detailed data compliance reports

• Provision of recommendations for corrective measures and continued guidance

 

This successful case marks a new step for Integra Group in the field of data compliance, enabling the provision of more comprehensive services and protection for foreign-funded enterprises in China as well as Chinese clients.

 

Introduction to Integra Data Protection Officer (DPO) Services

 

As a response to client demands, Integra will act as the Data Compliance Officer (DPO), offering ongoing compliance services and aiding clients in adapting to the intricate and ever-evolving regulatory landscape. Our services include:

 

• Serving as the designated data protection officer in alignment with the Personal Information Protection Act and other relevant regulations

• Development, implementation, and periodic revision of privacy policies, procedures, and frameworks

• Holistic data security management encompassing internal and external domains

• Coordination and execution of data protection impact assessments

• Handling complaints and appeals related to personal information

• Assisting in the management of data security incidents

• Conducting awareness training sessions for internal staff

• Facilitating communication channels with regulatory bodies

成功案例 | 协曈集团助力德资客户在中国市场实现数据合规

近日，协曈集团（“协曈”）协助一家德资企业成功完成中国数据合规项目。该项目有效化解了客户在中国市场的合规风险，增强了员工的合规意识，并为公司持续稳定的运营奠定了坚实基础，获得了客户的好评。

 

中国的数据安全法律体系，主要由《网络安全法》、《数据安全法》和《个人信息保护法》等组成。针对数据的跨境流动，中国还陆续出台了《数据出境安全评估办法》、《个人信息出境标准合同规定》及相关指南等规范性文件，搭建起了中国数据出境监管的机制。

 

外资企业在华面临的数据合规痛点

 

解决数据合规风险，一直是在华外资企业面临的主要法律挑战之一。在当前特殊的国际政治经济环境下，外资企业对数据合规的担忧显得更加突出。由于中国数据立法及监管的特殊性，不少外资企业正在普遍面临合规方面的困扰，包括：

 

• 无法判断自身是否满足数据合规要求；

• 不了解正在收集及处理的数据类型，对“重要数据”难以理解；

• 不清楚数据监管的机构、要求、方式及尺度；

• 缺乏数据管理的文件、制度及流程；

• 对跨境数据处理感到迷茫；

• 不知如何开展高效的、成本可控的合规管理，特别是对中小型企业而言。

 

在服务前，客户对数据合规没有基础，无法准确评估自身的风险。客户对于公司处理了哪些类别的数据，是否包含重要数据，内部数据保护制度的制订以及当前数据处理活动是否合法合规等问题感到十分担忧。

 

协曈集团提供数据合规解决方案

 

接受客户委托后，协曈的合规项目小组，迅速了解并理解客户需求，采用了国际通行的数据治理方法，重点开展了以下几项工作：

 

• 尽职调查，了解公司业务及需求

• 数据梳理及盘点，制作数据清单

• 员工合规意识培训，答疑解惑

• 订立数据合规制度及流程

• 形成数据合规报告

• 提供整改建议和后续指导

这一成功案例，标志着协曈在数据合规领域迈出了新的一步，能够为在华外资企业以及中国客户提供更全面的服务和保障。

 

数据合规官（DPO）服务介绍

 

为了满足客户在数据合规方面更多需求，协曈将作为数据合规官（DPO），提供日常合规服务，协助客户适应复杂的、不断变化的监管环境。我们的DPO服务内容包括：

 

• 按照《个人信息保护法》等要求，担任公司指定的数据保护负责人

• 制定、实施和定期更新隐私政策、流程和程序

• 监控组织内外的数据安全管理

• 组织和开展数据保护影响评估

• 处理与个人信息相关的投诉和申诉

• 协助管理数据安全事件

• 为内部员工提供意识培训

• 与监管机构进行沟通

本文作者

Kelvin Lou

Director，One Compliance Consulting

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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With the reopening of the Chinese market in the post-pandemic era, we saw a growing trend of expatriates seeking to obtain visas to work and reside in China. A thorough understanding of getting a work permit and work visa is essential for any expat planning to work in China. This guide provides an up-to-date overview of the application process, eligibility criteria, and necessary documentation for 2024.

 

An Introduction of China Work Permit

 

Basic Eligibility for Work Permits

 

To qualify for a Chinese work permit, both employer and employee (foreigner) must satisfy several criteria.

 

The employers must legally comply, offer roles of special necessity where domestic candidates are unavailable, ensure wages meet or exceed local standards, and secure any necessary industry-specific regulatory approvals for foreign employees.

The employees must be at least 18 years old and in good health, have no criminal record, and possess the required skills and a confirmed employer in China for their specific role.

Categories of Work Permits

The State Administration of Foreign Experts Affairs (SAFEA) implemented a nationwide unified work permit system to assess foreign talents. This system uses market and international peer evaluations to emphasize abilities, achievements, and contributions. It integrates policy tools like points-based systems and guidance catalogs, dividing foreigners working in China into three groups: foreign high-end talents (Category A), foreign professionals (Category B), and ordinary foreign personnel (Category C).

 

• Category A: Foreign High-end Talents

Category A refers to individuals such as scientists, technology leaders, international entrepreneurs, and specialized talents. This category also includes those who qualify as foreign high-end talents based on a points system – with 85 or more points. There is no age, educational, or professional experience restrictions for these talents.

 

• Category B: Foreign Professionals

This category is for talents meeting specific educational, professional, or work criteria in China’s regulations. Typically, individuals with a bachelor’s degree and over two years of relevant work experience are eligible to apply for it. Foreign talents who have scored 60 or more in the scoring system also qualified.

 

• Category C: Ordinary Foreigners

Ordinary foreigners are classified as Category C when they align with the domestic labour market needs, are employed in temporary (no more than 90 days), seasonal, non-technical, or service positions that adhere to China’s policies and regulations.

 

Please visit the this link to view all the classification standards.

The Point-based Scoring System for China Work Permit

 

Following is the criterias for the point scoring system of the work permit:

积分要素计分赋值表（暂行版）

Integral Element Scoring Assignment Table (Provisional Version)

Source: Integra Group

 

Basic Handling Process

 

Online Application: Employers must log in to the designated system, submit information electronically, and provide necessary digital documents.

 

Online Preliminary Review: Within 5 working days, the acceptance authority reviews the submitted materials online. Incomplete or non-compliant applications will receive a one-time online notification for correction; otherwise, an online confirmation or an appointment for on-site material submission will be made.

 

Acceptance: The authority decides on the acceptance of the application. If the application is complete and falls under the agency’s jurisdiction, an acceptance receipt is issued immediately. 

 

Review: The decision-making authority reviews the verified materials and makes a decision within 10 working days. Verification includes checking the original employment contract, work qualification certificate, no criminal record certificate, physical examination certificate, and highest degree certificate.

 

Decision:  Where the requirements and criteria are met, the decision-making authority will decide to grant administrative permission, generate a Work Permit Notification online,  and issue the Foreigner Work Permit within 10 days of the decision.

 

Below is a flowchart outlining the application process for a Work Permit: 

Source: Ministry of Science and Technology

In practical, for a new application, if all required documents are in order, it generally takes 15-20 working days from the submission of the application to receiving the work permit notice. Additionally, the actual situation can vary from city to city, so it is advisable to consult professional firms or the relevant authorities to obtain the most up-to-date information.

Obtaining a Work Visa （Z-Visa）for China

 

The Work Visa (Z-Visa) is granted to individuals who are employed, assume a professional post, or participate in commercial performances in China. After obtaining the Foreigner Work Permit Notification letter, applicants can proceed to apply for the China Work Visa at their local visa center or the nearest Chinese embassy.

 

The general process for obtaining a Chinese work permit and work visa involves:

 

• Job Offer: Secure a job offer from an employer in China.

• Work Permit Notification: The employer applies for a Work Permit Notification at the local labor bureau in China.

• Visa Application: Apply for a Z Visa at the nearest Chinese embassy or consulate with the Work Permit Notification.

• Entry into China: Enter China with the Z Visa.

• Work Permit: Applicants must apply for the Work Permit within 15 days of entering China.

• Residence Permit: If the duration of the work visa is more than 30 days, the holders of Z-Visa must apply for a residence permit from the immigration department of the local public security authority.

 

The standard documents required include:

 

• Passport with at least six months of validity.

• Completed visa application form with a passport-sized photo.

• Official job offer from a Chinese employer.

• Work Permit Notification.

• Health certificate (if applicable).

• No criminal record certificate.

 

For the most up-to-date information and specific guidelines, it’s advisable to consult the official websites.

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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As China becomes part of the global economy and domestic demand for foreign products and expertise continues to grow, more and more businesses are deciding to establish a presence in China. In order to achieve an overall greater return on investment and minimize risks, investors need to fully understand the People’s Republic of China (PRC) tax system and the associated costs before making a final investment decision.

 

Below we provide an overview of the PRC tax system and administration to provide investors background information on the associated tax costs of doing business in China. We also discuss some of the business activities which do not involve direct investment within China and the applicable taxes triggered by these types of activities.

 

The information provided does not cover taxes levied in Hong Kong SAR and Macau SAR.

 

Tax Categories

 

The major taxes applicable to foreigners, foreign enterprises (FE), and foreign investment enterprises (FIE) doing business in China are as follows:

 

Value-added tax (VAT) – The sales or importation of goods, provision of services, sales of intangible assets or real estate, are subject to VAT. VAT rates depend on the business scope; sale of goods (13%), special sectors (9% – 10%), and services (6%). Businesses can also register as a small-scale VAT taxpayer and apply a flat VAT rate (3%) levied on total revenue but prohibit the use of input VAT deductions.

 

Customs duty – applies to imported goods and is based on the value of the transaction or specific duty (e.g. RMB 80 per unit or kg). The applicable duty rates depend on the category of goods and the country of origin.

 

Consumption tax – is levied on manufacturers and importers of specific consumer goods such as alcohol, tobacco, cosmetics, jewelry, fireworks, gasoline, automobiles, luxury watch, etc. The tax liability is computed based on the sales amount and/or the sales volume depending on the goods concerned. Consumption tax is imposed in addition to applicable Customs duty and VAT.

 

Corporate Income Tax (CIT) – is levied on the net profit of the company. Generally; The CIT rate is 25%. The qualified new/high tech enterprises are able to apply for a reduced CIT rate of 15%. For “Micro and Small-sized Enterprises” (MSE), CIT rates range from 5%-25% depending on the total revenue and profits.

 

Individual Income Tax (IIT) – China uses a progressive IIT rates ranging from 3% – 45% for individuals’ comprehensive income, 5% – 35% for individual’s income from operations (e.g. income derived by private industrial and commercial activity; sole proprietorship; etc.), and a fixed rate of 20% for other incomes (e.g. interest, dividend, incidental income, etc.). For comprehensive income, such as wages and salaries, China’s IIT law provides a standard annual deduction of RMB 60,000 and additional itemized deductions available to all individuals.

 

Other taxes: Resource tax, real estate tax, stamp tax, deed tax, urban construction and maintenance tax, educational surcharge, etc. – are a series of taxes or surcharges levied on specific types of transactions and business activities.

Tax Residency

All businesses and individuals, inside and outside of China, are classified either as PRC tax residents or non-PRC tax residents.

 

PRC Tax Resident Enterprise (TRE) refers to an enterprise established according to the Chinese law or an enterprise established according to foreign laws but with its effective management located in China.

 

TREs – are taxed on all sources of income – including income derived from overseas. The TREs will be allowed to deduct the tax paid overseas within limit from its tax liability in China provided that a Double Taxation Avoidance Agreement (DTAA) is in place. All registered legal entities in China are automatically classified as TREs. Overseas businesses without a registered legal entity in China can still be classified as TREs if they are determined to have effective management in China.

 

Non-TREs – are taxed only on China-sourced income. Overseas entities are generally considered to be non-TREs. Representative Offices (ROs) in China are also considered to be non-TREs as they are treated as an extension of oversea entities, and only perform liaison & promotional activities in China for their oversea head offices.

Withholding Taxes for non-TREs

Withholding taxes (WHT) are levied on payments made to overseas entities (non-TREs) and must be withheld by the Chinese entity before remittance can be made.

 

Passive income derived by Non-TREs – including dividend, royalty, rental, capital gain, and interest are subject to withholding taxes of VAT (6 – 13% per category) and CIT (20%, reduced to 10% under current provisions). Under a tax treaty, the WHT rates can be lower or even exempted depending on the destination country.

 

If the passive income is derived by a foreign individual of non-PRC Tax Resident, it’s subject to withholding taxes of IIT (20%) instead.

 

A “Tax Completion Certificate” is provided for deducting tax paid in China from the tax liability in the oversea home countries according to the tax treaties.

 

Double Tax Relief

Double tax relief is granted through Double Taxation Avoidance Agreements (DTAA) signed between China and other countries and provide relief from the double taxation of income, assets, or financial transactions. They allow for tax credits to be claimed in China up to the amount paid in tax to a foreign country within the same tax category – and vice versa. DTAAs effectively reduce the taxes withheld from income or other financial transactions between the two countries.

 

As of January 31, 2023, China has DTAA’s in place with 112 jurisdictions. It’s important to consider the implications of a DTA before deciding on a final investment structure for your new company.

 

Tax Filing Requirements

Businesses in China all have to meet monthly, quarterly, and annual statutory filing requirements. Reporting and tax declaration are mostly done online, through an online tax portal for the local municipality to which your business pays taxes to.

 

VAT – Value added tax is filed and collected monthly for general VAT taxpayers and quarterly for small-scale VAT taxpayers – due before the 15^th day of the following month or following the end of the quarter. Special circumstances may require VAT to be paid upon issuing the tax invoice (fapiao).

 

CIT – Corporate Income Tax is filed and collected quarterly for all businesses – due before the 15^th day following the end of the quarter. An annual CIT reconciliation return is filed once per year, due before the 31^st of May of the following year. Businesses should pay the tax shortage or claim back any overpaid taxes during their annual return. Any tax losses may be carried forward for a period of up to five years, subsequent to the year of the loss.

 

IIT – all individuals are required to file and pay individual income taxes before the 15^th day of the following month, either withheld by the withholding agents (e.g. the employers) or through self-declaration by the taxpayers. Individual PRC Tax residents who meet specific criteria must also file an annual tax reconciliation return between 01^st March and 30^th June of the following year for their comprehensive income.

Preferential Tax Treatments

China employs a “predominantly industry-oriented, limited geography-based” tax incentive policy, aiming at directing investments into those industry sectors, projects, or regions that are encouraged and supported by the state.

 

Industry-oriented:  agriculture, forestry, animal husbandry, and fishery projects; Specified basic infrastructure projects; Environment protection, energy conservative projects; qualified new/high tech enterprises, etc.

 

The tax incentive policies mainly include tax reduction and exemption, reduced tax rates, and additional tax deductions.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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On March 8, 2023, China acceded to the “Convention Abolishing the Requirement of Legalisation for Foreign Public Documents” (hereinafter referred to as the “Convention”). The Convention will come into effect in China on November 7, 2023.

 

Integra Group has previously provided a detailed introduction  to the content of the Convention and the positive impacts following its accession in an article. You can read it here: China Joins the Apostille Convention: Boosting Collaboration

Starting from November 7, public documents from China intended for use in other contracting states will only require the Apostille, as stipulated by the Convention, eliminating the need for consular legalization by both the Chinese diplomatic or consular missions and those of the receiving state in China. Similarly, public documents from other contracting states intended for use in China will only require an Apostille from the issuing state, without the need for consular legalization by both the diplomatic or consular missions of the issuing state and China in the respective country.

Ministry of Foreign Affairs (MOFA) of China is the authority designated by the Convention to issue Apostilles and is responsible for issuing Apostilles for public documents originating within the country. The Foreign Affairs Offices (FAOs) of provinces, autonomous regions, and municipal governments, as well as some city-level FAOs, are authorized to issue Apostilles for documents originating within their respective administrative areas.

List of Local Foreign Affairs Offices Issuing Apostilles （as of 23th Oct 2023）

 

Provincial Foreign Affairs Offices (25)

Anhui, Chongqing, Fujian, Guangdong, Guangxi, Guizhou,         Henan, Heilongjiang, Hubei, Hunan, Hainan, Jilin, Jiangsu, Jiangxi, Liaoning, Sichuan, Shandong, Shanghai, Shaanxi, Yunnan, Zhejiang, Gansu, Hebei, Shanxi, Inner Mongolia

 

Municipal Foreign Affairs Offices (6):

Changchun, Harbin, Ningbo, Jinan, Qingdao, Shenzhen

The Chinese Apostille will be in the form of a sticker, affixed with a silver national emblem seal. Apostilles issued by the MOFA and respective local foreign affairs offices support online verification, which can be accessed at http://cs.mfa.gov.cn/.

For a complete list of countries and territories that are party to the Convention, please check it here. 

Please be aware that documents originating from mainland China intended for use in either Hong Kong SAR or Macao SAR, and vice versa, are exempt from requiring an apostille. The legalization process for documents exchanged between them will persist in adhering to existing protocols, such as attestation by an attesting officer appointed by China.

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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The National Immigration Administration (NIA) of China announced that it would be releasing a new version of the foreign permanent resident (PR) ID card starting December 1, 2023.

 

Details of the New ID Card

The updated ID card will showcase a fresh design incorporating elements from China’s national flag, including new drawings of the Great Wall and shadings. The card will also feature more advanced anti-counterfeit technologies, ensuring a higher level of security.

 

The card number will expand from 15 to 18 digits, incorporating various information codes such as the foreigner identification code, nationality code, and application location code. Each cardholder will be assigned a unique number that remains unchanged throughout their lifetime.

 

Technological Advancements

 

The NIA has upgraded the card’s machine-readable and visual-readable fields, enhancing anti-counterfeiting features and optimizing the layout. The card will be easily identifiable through visual reading, facilitating more on-site application scenarios and online platforms.

 

Moreover, the card’s chip storage structure has been adjusted to be compatible with widely used identity card-reading machines across various sectors and departments.

 

Benefits of the New ID Card

 

Cardholders can use the PR ID Card as a valid certificate in situations such as accommodation registration and transportation ticket purchase, without the need to present their passports. Cardholders will have easier access to services such as education, health, transport, hotels, financial activities, and e-commerce.

 

NIA officer also explained that the card allows its holder to enter and exit the Chinese border multiple times, without the need for additional visa procedures, when presented along with a valid passport.

 

Existing cardholders can continue using their current cards within the effective period and apply for the new version at local exit-entry administration agencies as needed.

 

China initiated its permanent residency program for foreign nationals in 2004 with the goal of attracting international talent and fostering the nation’s socio-economic growth. While the initial stages of the program were characterized by stringent criteria, limiting the number of individuals who could secure permanent residency annually, there has been a notable shift in recent years.

 

The government has undertaken efforts to revise the permanent residency laws, aiming to expand the eligibility criteria for prospective applicants. This move is seen as a strategic approach to encourage a more diverse pool of skilled individuals from various fields to consider China as a viable place for long-term residence.

 

With the introduction of the new ID card, China is poised to elevate its openness and enhance the digitalization of services for foreign residents, promising improvements in both quality and efficiency.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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The cost of hiring in China consists primarily of mandatory expenses such as employee’s gross salary and social security contributions. It is also common practice in China to provide other incentives and bonuses to employees based on performance or other criteria – though this is entirely up to the discretion of employers.

When considering the total cost of employment in China, employers should first determine the gross salary using fair compensation for similar work in the designated city. Factoring in the various additional costs borne by the employer – such as mandatory social security benefits – and other voluntary benefits, employers can then begin to see the total cost of hiring employees in China.

Compensation and Benefits (C&B)

 

C&B is typically divided into three parts: wages and salary, incentives and bonuses, and mandatory social security contributions.

 

• Wages & Salaries are generally paid monthly and vary from 12-13 months. A 13th-month pay scheme is common practice – but not mandatory – in China, with the 13th month’s pay issued during the Chinese Spring Festival. Overtime pay according to PRC labor law is calculated as 150% of normal wages when performed on weekdays, 200% when performed on rest days (i.e. weekends), and 300% performed in public holidays.

   

• Incentives and Bonuses – are generally tied to individual performance and/or team/company overall performance. They can be paid monthly, quarterly, or annually and are normally not guaranteed. Examples include individual performance, team performance, profit sharing (payouts based on organizational profitability), comprehensive performance (awards based on the performance of the company, team, and individuals), sales bonuses, sales commissions, and special recognition awards.

   

• Social securities – refers to the 5 social insurances and 1 housing provident fund. Social security contributions are mandatory for both employers and employees and comprise a significant portion of the total employment costs. Generally, the employer portion ranges between 35-40 percent of the employee’s monthly gross salary up to a fixed limit.

 

Normally the contributions are based on the employee’s average monthly gross salary of the previous year and are limited to Maximum Base and Minimum Base. The Maximum and Minimum bases are typically 300% and 40% of the local average gross wages of the previous years. However, they differ between cities and are announced by the local government annually.

Individual Income Tax (IIT)

 

Individual income for wages and salary in China is taxed based on a progressive tax system with seven tax brackets ranging from 3%-45%.

 

China tax residents are taxed on their gross wages and salary (including base salary, bonuses, allowance, etc.) minus the employee portion of the social security contributions and allowed itemized deductions. All China tax residents are also allowed an additional RMB 60,000 standard deduction per year. 

 

In 2019, China implemented a series of special additional deductions aimed at alleviating the financial burdens associated with specific expenditures. These deductions were applicable to a variety of expenses, encompassing children’s education, continuing education, healthcare costs for severe illnesses, housing loan interest, support for the elderly, and housing rent.

 

Recently, the Chinese government announced plans to extend these benefits further by reducing individual income tax rates for people who are supporting children or elderly family members.

 

The IIT formula is:

Taxable Income = gross salary – employee social security contribution – standard deduction – additional itemized deductions – other allowable deductions

 

Expatriate employees currently enjoy more preferential policies when it comes to deductible expenses. Until December 31st, 2027, expatriates can fully deduct certain expenses items from their taxable income – without clearly defined limits.

 

IIT for expatriates

 

Expatriates who reside in China for cumulative 183 days or longer within a calendar year are considered PRC tax residents. After 6 consecutive years of PRC Tax Residency status, expatriate’s worldwide income will become subject to tax in China.

 

Expatriate in China who wants to avoid subjecting their worldwide income to taxation in China, can reset the 6-year requirements by exiting China for more than 30 days consecutively or 183 days cumulatively in any tax year during a 6-year period.

 

According to regulations issued by the PRC Ministry of Human Resources and Social Security, expatriates must also pay into the mandatory social security funds in China. As of Dec 31st, 2019, China has entered into Bilateral Social Security Exemption Agreementswith 10 countries providing exemptions from social security contributions for expatriate employees from these countries.

 

However, enforcement of social security contributions for expatriate employees varies between jurisdictions. In practice, many employers in certain cities choose to not make social security contributions for expatriate employees.

 

Holiday and Leaves:

 

Public holidays

Public holidays in China are arranged according to both the Lunar calendar and the Gregorian calendar. The central government will announce, typically in November, the public holiday schedule for the following year. In total, there are 11 fully paid public holidays. In addition, the government will typically provide additional “rest days” following the Chinese Spring Festival and Mid-Autumn festival public holidays to extend the holiday. Employees should work one or two rest days (i.e. Saturday or Sunday) to make up for the additional time off given to them.

 

Annual leave

By law, the minimum fully paid annual leave granted to full-time employees is 5 days following one year of employment and increases with the number years of employment as follows – up to 15 days after cumulative 20 years of employment.

 

Companies may provide more paid time off as part of their company policy or personal benefits for their employees at their own discretion.

 

Sick Leave

Employees are granted a fixed number of paid sick days per year depending on the seniority of the employee. The minimum number of paid sick days and pay varies by city/province – generally a percentage of daily wages.

 

Other Paid Leave

According to China labor law, employees are also entitled to various paid leave such as marriage leave, pre-maternity leave, maternity/paternity leave, funeral leave.

 

Termination of Employment Contracts

 

Terminating an employment contract according to China’s Labor Laws requires employers to give 30-days prior notice and pay severance to the employee. Severance pay is generally equivalent to one month’s salary per year of employment with the company – or half month salary if the employee worked for less than 6 months with the company.

 

Companies can avoid paying severance if;

a)    Termination of a labor contract is mutually agreed upon; or,

b)    The employee is fired for violation of the labor contract (breach of contract provisions or disciplinary rules) with solid documentation and supporting evidence.

It’s important to note that labor disputes in China generally favor the employee. The burden falls on the employer to provide solid documentation and evidence to assert its right to terminate a labor contract and penalty for wrongful termination is generally two times the amount of the original compensation.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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When operating in overseas markets a key challenge is always navigating the various local tax laws and regulations that apply to the business and its activities. 

Tax planning is the means by which businesses regularly assess and strategically manage the tax liability arising from their business activities. Generally, this includes Corporate Income Taxes (CIT), Value-Added-Tax (VAT), and Individual Income Taxes (IIT). As the complexity of a business increases, so does the tax planning considerations. Here we share some of the key tax planning considerations for businesses of all complexities to guide foreign investors in China.

Company Setup Tax Planning

During the company setup, the business owners must make several decisions that affect the future tax payables of the business.

Taxpayer Status

Applying for small-scale VAT taxpayer status allows businesses to apply a flat 3% VAT rate for both products and services – as opposed to the standard 6% (servicing) and 13% (product trading) paid by General VAT Taxpayers. However, small-scale VAT taxpayers are not allowed to offset their VAT payable using input VAT deductions. Instead, they pay a flat 3% VAT on gross sales revenue.

 

Determining which taxpayer status is more efficient varies case by case depending on several factors including the amount of estimated input expenses, whom your suppliers are, the expected turnover of the company, and more. We suggest working with a professional tax accountant to determine the most efficient taxpayer status based on individual circumstances.

 

Business Scope

Tax rates vary between products (9% – 13%) and services (6%). Separating products and services allows businesses to apply a lower tax rate for revenue generated through services. Generally, both product and service business scopes can be applied for under a single business license. However, in some cases where it is difficult to separate the service from the product – such as certain hardware and software applications – the company may be required to register two separate companies to effectively apply a lower tax rate.

 

Additionally, in order to qualify for various preferential policies and incentives, businesses must meet a specified business scope. The business scope cannot be too broad, or it might affect their ability to apply for preferential treatment and incentives.

 

Preferential policies and incentives 

There are various preferential policies and incentives provided in China including – reduced tax rates, special “super deductions”, tax holidays, reduced interest rates, cash incentives, and other fiscal stimuli. Preferential policies follow the current economic agenda outlined in the various “Encouraged Catalogues” and can change frequently. Generally, they are awarded based on the following factors:

 

Business activities – such as infrastructure investment, high-new technology enterprises (HNTEs), and other industry sectors which meet the economic and social development needs of each region.

 

Location – such as Free Trade Zones (FTZ), High-Tech parks, Belt and Road Initiative (BRI) areas, Guangdong-Hong Kong-Macao Greater Bay Area (GBA), Hainan Free Trade Port and other areas outlined as “in-need” for investments (Example: China’s Western Regions).

 

The first stage of applying for preferential tax treatment and incentives requires you to engage with an advisor to determine whether your business meets the qualifications set out by local jurisdictions. In some cases, the criteria are clearly laid out and other times this involves liaising with the relevant regional authorities over the permissible business activities and incentives.

 

Micro- and Small Sized Enterprises

Micro- and Small Sized Enterprises (MSEs) are defined as “having a relatively small size in personnel and scope of business”. The standard for classification of MSEs is based on the industry, operating income, total assets, and the number of employees belonging to a company. Over 95% of all Chinese businesses classify as MSEs.

 

Various preferential tax policies are targeted to China MSEs and effectively reducing the tax payable up to prescribed limits, including;

 

• The first RMB 1 million of taxable income will be taxed at a preferential CIT rate of 20% for 25 percent of their income, with the remaining 75 percent tax-free (effective tax rate 5%).
• Taxable income for the next RMB 1 million to RMB 3 million will be taxed at a preferential CIT rate of 20% for 50 percent of their income, with the remaining 50 percent tax-free (effective tax rate of 10%). Till the end of year 2027, there is extra 50% tax exemption (effective tax rate 5%).
• Taxable income above RMB 3 million will be taxed at CIT rate of 25%.
• Small-scale VAT taxpayers with monthly revenue of less than RMB 100k will be exempted from remitting VAT on certain items. If monthly revenue is above RMB100K (monthly filing taxpayer) or quarterly revenue is above RMB 300K (quarterly filing taxpayer), all revenue of small-scale VAT payer will be taxed at VAT rate of 1% till the end of year 2027.

 

Daily Tax Planning

The transactions a business engages in on a daily business not only have an impact on the cash flow, but also the underlying tax liability of the business. Effectively managing the taxes you pay requires an understanding of how transactions are recorded and  their related bookkeeping procedures. Below are some tax planning matters to be considered:

 

VAT planning

China’s official VAT invoices (fapiaos) play an important role in the daily tax planning of businesses. Once a fapiao is issued, the resulting VAT payable is due upon the next VAT declaration.

 

Chinese businesses are required to self-declare and pay VAT monthly or quarterly depending on their taxpayer status. However, special transactions – such as overseas remittances – can sometimes require the business to pre-pay VAT.

 

Generally, businesses should be mindful when issuing fapiao and carefully monitor each invoice to avoid issuing duplicate fapiao. Good practice is to specify in sales contracts when a fapiao is issued and align those terms with the collection of sales revenues. Businesses should also be mindful of purchase contracts and request fapiaos be issued together with the payments made to those suppliers.

 

CIT planning

Taxable income is revenue minus qualified expense deductions. Regardless of whether the company made a profit, an unqualified deduction can result in the business paying CIT on some of its expenses.

 

Expenses entered into the financial records without an accompanied fapiao, or an unqualified fapiao attached are considered to be unqualified expenses. It is important the business maintains up-to-date financial records and implements procedures to ensured supporting fapiao are qualified to protect the integrity of their accounting records.

 

The deductibility for certain expenses is limited based on the thresholds set by the tax authority. Expenses beyond these limits are required to be “added back” for income calculation purposes and levy applicable CIT rates to said amount. It is important to monitor these tax-deductible thresholds and be mindful of the additional tax payable above these limits.

Benefits of tax planning

Tax planning has many benefits for companies of all sizes ranging from operational cash flow to a lower underlying tax liability. Companies are advised to consider the tax planning methods discussed and adopt policies to monitor their tax payable regularly. A majority of businesses, especially MSEs, can enjoy the benefits of tax planning using these methods.

 

In addition, the tax planning methods available to companies meet a certain degree of size and complexity go beyond those discussed here. These include businesses with large R&D expenditure, multinational companies with subsidiaries in China and overseas, and companies with a mix of both services and products. Companies that meet these general criteria should spend more time exploring the tax planning options available to them and how they can maximize their benefits.

 

For more information about tax planning in China and assistance with applying these methods, businesses are advised to speak with a professional tax accountant or advisor.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

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The individual income tax benefits for foreigners, initially set to expire at the end of this year, will now continue until the end of 2027.

 

Foreign nationals who meet the criteria for tax residency in China (which refers to individuals who have domicile in China, or though without domicile but have resided for more than 183 days in total in China) now have a choice between two distinct tax advantages.

 

According to the updated guidelines, eligible individuals can either choose a special additional deduction for their personal income tax or follow the previously established regulations that provide tax-free benefits for housing allowances, language course fees, children’s education expenses, and other subsidies.

 

It’s crucial to note that these two benefits cannot be availed concurrently. Once an individual makes a selection, it remains unchangeable for the duration of that tax year.

 

This recent announcement confirms that this policy will remain in effect up to the end of December 2027, solidifying a long-term structure for the personal income tax strategy concerning subsidies for foreign nationals.

 

Recommendations for Companies

 

Companies employing foreign nationals should consider making HR and payroll policy adjustments in light of this extension. They should communicate with their employees to arrange benefits in line with the current policies. Companies that had made preparations for the original tax policy change might need to reconsider their decisions.

 

Extending the IIT preferential policy for foreigners showcases China’s strategic intent to attract and retain international talent. It also underscores China’s commitment to creating a favorable environment for foreign professionals and businesses.

 

Integra Group is a fully licensed asia-focused accounting, taxation, and business advisory firm – with dedicated offices in Shanghai, Beijing, Singapore and Taipei. We’ve helped companies ranging from Fortune 500 companies to small to medium sized businesses establish and grow their presence in Asia.

Contact Us