In the news: E-commerce sites get new tax rates, the NDRC eases outbound investments, a Chinese electric car maker beefs up and social insurance payments are lowered
April 20, 2016 | BY
Katherine Jo &clp articles &This week a new tax policy targeted imported goods purchased online, the NDRC simplified its outbound approval process, a Tencent-backed company poached three BMW execs and the government reduced companies and workers' social security burdens
A new tax policy on foreign goods, which came into effect on April 8, no longer treats imported retail goods purchased online as personal postal articles, which generally enjoy a more favorable tax rate. Instead, they are now processed through the general trade channel, meaning customs duty, import VAT and consumption tax apply. The tariffs for all goods are set at zero, but the new policy sets a Rmb2,000 per single cross-border transaction and a maximum Rmb20,000 per person per year. The change in total cost of purchased items is only significant for expensive or luxury items. The move closes a tax loophole that allowed lower prices on goods sold through websites operating outside of China and may prompt a rethink in firms' business models. Authorities were also looking to crack down on a gray market where overseas Chinese individuals order baby formula and other products online on behalf of those in the mainland looking to avoid taxes. The regulation may pose a challenge for some foreign companies like Danone, which sell through these foreign sites and may need to move toward direct sales. As for the actual e-commerce platforms, they will need to either negotiate lower prices with foreign retailers or absorb the additional tax burdens themselves.
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The National Development and Reform Commission (NDRC) published a consultation paper seeking comments on the proposed amendments to its rules on outbound investment. It further deregulates the clearance process of overseas deals, such as by clarifying that only sensitive investments are subject to approval and that value thresholds are irrelevant, no longer requiring letters of intent from banks for project financing and simplifying other various administrative procedures. The current rules, which were issued on April 10 2014, state that Chinese investors pursing overseas M&A or projects worth over $300 million must submit a report to the NDRC, and will receive a confirmation letter from the regulator in 7 days if the investment “complies with the state's outbound investment policy”. The amendments remove this latter clause, and also subtly change “confirmation letter” to “acknowledgement letter”. According to a King & Wood Mallesons report, this allows the NDRC to give the nod to multiple companies bidding for the same deal, whereas previously it would only 'confirm' one application per transaction. This bodes well for the global bidding power of, and competition among, Chinese investors.
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BMW AG has lost the core development team of its i3 and i8 electric vehicle line to Future Mobility Corp, a Chinese startup backed by Tencent Holdings. A 20-year BMW veteran who developed the company's i8 hybrid sports car left last month to become chief executive of the Chinese electric car company, and now three key executives from the BMW i group—the developer of the i-series' electric powertrains and the heads of design and product management—are following him. Electric car makers are competing fiercely in China, where plenty of regulatory and commercial incentives are up for grabs, including R&D subsidies for domestic brands and exemptions for certain monopoly agreements when promoting new electric cars. The government says it wants 5 million green vehicles on the road by 2020. France's Renault just opened its first Chinese factory in February in Wuhan to produce electric cars, while U.S. household brand Ford said it will invest $4.5 billion in electric vehicles with a focus on China. But local firms are looking to dominate their home turf (as can be seen by these lateral exec hires). Geely, which owns Volvo, says it will shift 90% of its sales to hybrid and electric vehicles by 2020 and BYD already claims it is the world's largest electric car maker.
More from CLP:
The draft auto AML guidelines explained
National Development and Reform Commission, Anti-monopoly Guidelines for the Automotive Industry (Draft for Comments)
Ministry of Commerce, Measures for the Administration of the Sale of Motor Vehicles (Draft for Comments)
How to properly conduct an auto recall in China
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The Chinese government decided last Wednesday to further reduce the burden on both individuals and enterprises by cutting their social security fund payments. In a statement issued by the State Council, the required contribution rates of the pension insurance, unemployment insurance and housing provident funds will be lowered in a two-year period beginning on May 1. Companies that contribute more than 20% of the pension insurance payment can pay just 20%, and those in certain provinces can lower the rate to 19%. The rate of unemployment insurance will range between 1% and 1.5%, down from the current 2%. Housing funds will remain under 12%. The government estimates companies across the country will be able to save over Rmb100 billion ($15.48 billion) each year. Underpaying social insurance is a major cause of labor unrest in China. An increasingly active, connected and informed workforce has caused trouble for some factories, and consequences of recent events confirmed that companies need to fully comply with contribution requirements. HR departments should consult with local government bureaus on the correct calculation methods. This piece examines payment breakdowns for companies in Beijing and Shanghai.
More from CLP:
A new tax policy on foreign goods, which came into effect on April 8, no longer treats imported retail goods purchased online as personal postal articles, which generally enjoy a more favorable tax rate. Instead, they are now processed through the general trade channel, meaning customs duty, import VAT and consumption tax apply. The tariffs for all goods are set at zero, but the new policy sets a Rmb2,000 per single cross-border transaction and a maximum Rmb20,000 per person per year. The change in total cost of purchased items is only significant for expensive or luxury items. The move closes a tax loophole that allowed lower prices on goods sold through websites operating outside of China and may prompt a rethink in firms' business models. Authorities were also looking to crack down on a gray market where overseas Chinese individuals order baby formula and other products online on behalf of those in the mainland looking to avoid taxes. The regulation may pose a challenge for some foreign companies like Danone, which sell through these foreign sites and may need to move toward direct sales. As for the actual e-commerce platforms, they will need to either negotiate lower prices with foreign retailers or absorb the additional tax burdens themselves.
More from CLP:
The National Development and Reform Commission (NDRC) published a consultation paper seeking comments on the proposed amendments to its rules on outbound investment. It further deregulates the clearance process of overseas deals, such as by clarifying that only sensitive investments are subject to approval and that value thresholds are irrelevant, no longer requiring letters of intent from banks for project financing and simplifying other various administrative procedures. The current rules, which were issued on April 10 2014, state that Chinese investors pursing overseas M&A or projects worth over $300 million must submit a report to the NDRC, and will receive a confirmation letter from the regulator in 7 days if the investment “complies with the state's outbound investment policy”. The amendments remove this latter clause, and also subtly change “confirmation letter” to “acknowledgement letter”. According to a
More from CLP:
BMW AG has lost the core development team of its i3 and i8 electric vehicle line to Future Mobility Corp, a Chinese startup backed by Tencent Holdings. A 20-year BMW veteran who developed the company's i8 hybrid sports car left last month to become chief executive of the Chinese electric car company, and now three key executives from the BMW i group—the developer of the i-series' electric powertrains and the heads of design and product management—are following him. Electric car makers are competing fiercely in China, where plenty of regulatory and commercial incentives are up for grabs, including R&D subsidies for domestic brands and exemptions for certain monopoly agreements when promoting new electric cars. The government says it wants 5 million green vehicles on the road by 2020. France's Renault just opened its first Chinese factory in February in Wuhan to produce electric cars, while U.S. household brand Ford said it will invest $4.5 billion in electric vehicles with a focus on China. But local firms are looking to dominate their home turf (as can be seen by these lateral exec hires). Geely, which owns Volvo, says it will shift 90% of its sales to hybrid and electric vehicles by 2020 and BYD already claims it is the world's largest electric car maker.
More from CLP:
The draft auto AML guidelines explained
National Development and Reform Commission, Anti-monopoly Guidelines for the Automotive Industry (Draft for Comments)
Ministry of Commerce, Measures for the Administration of the Sale of Motor Vehicles (Draft for Comments)
How to properly conduct an auto recall in China
China's auto industry explained
The Chinese government decided last Wednesday to further reduce the burden on both individuals and enterprises by cutting their social security fund payments. In a statement issued by the State Council, the required contribution rates of the pension insurance, unemployment insurance and housing provident funds will be lowered in a two-year period beginning on May 1. Companies that contribute more than 20% of the pension insurance payment can pay just 20%, and those in certain provinces can lower the rate to 19%. The rate of unemployment insurance will range between 1% and 1.5%, down from the current 2%. Housing funds will remain under 12%. The government estimates companies across the country will be able to save over Rmb100 billion ($15.48 billion) each year. Underpaying social insurance is a major cause of labor unrest in China. An increasingly active, connected and informed workforce has caused trouble for some factories, and consequences of recent events confirmed that companies need to fully comply with contribution requirements. HR departments should consult with local government bureaus on the correct calculation methods. This piece examines payment breakdowns for companies in Beijing and Shanghai.
More from CLP:
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