Applying for Work Visas and Related Documentation(0)
With the Olympics now a thing of the past, the restrictions are likely to remain in place for 2009. China has various anniversaries to contend with, such as the 50th anniversary of the Dalai Lama’s departure to India, and the 20th anniversary of the Tiananmen Square demonstrations. These will result in heightened domestic security measures during the year and will impact on the type of foreign involvement China wants in the country during this time. Visa issuance will be affected. Applications for employment visas and residence permits will become more stringent. In this article, we look at how to apply for an employment and residence certificate in China, the current documentation needed, and new requirements that are being put in place across the country.
Applying for an employment and residence certificate in China can be roughly broken down into four steps: the Alien Employment License application; the Employment Visa and Residence Permit Notification application; the Alien Employment Permit application; and the Residence Permit application.
Alien Employment License
The Alien Employment License is a document which basically states that a foreigner is allowed to work in China. It is needed to apply for an Employment (Z) Visa Invitation Letter from the Ministry of Commerce. An invitation letter is needed to apply for an entry visa that can be converted into a work and residence permit. While in the past it was common for F visas to be converted into work and residence permits, currently most cities require an applicant to obtain their Z Visa from their country of residence (their home nation or country where they possess legal residency).
Individual Income Tax for Expatriates in China(0)
Individual income tax in China is a complex subject, and changes to the system often occur ? the Chinese tax authorities are currently considering increasing the minimum threshold at which individual income tax must be paid to RMB3,000 per month. While changes to China’s tax regime that would affect expatriates are not expected, the central government has been known in the past to wait until February or early March to issue new implementation rules and so changes can’t be ruled out.
The information in this article is the most up-to-date that we have. As with a lot of things in China, changes can happen quickly and we strongly urge those in need of tax advice to seek out professionals who will be aware of any changes to the tax regime.
Expatriates should be aware that newcomers must register for tax, work visas and residence permits, and those expats who worked in China during 2008 must still report separate annual IIT filings in addition to their monthly tax returns. There are financial penalties if this is not carried out for both sets of expat. Below we explain in detail.
China’s taxes: Who Pays? Who Reports?
China has a multi-tiered system of tax liabilities for foreigners, which has lead to some confusion, particularly over the so-called 90 or 183 days rule. For those sent to China by a foreign company, who have their salary paid elsewhere (probably in their home country), and spend more than 183 days of a calendar year in China (or 90 if they are from a country that does not have a double tax treaty with China), they need to pay IIT in China based on the number of days they effectively spent in the country.
New expatriates in China
New-to-China expatriates with full time employment here need to make sure they are in compliance. The onus is on the individual to ensure this and fines can be levied and passports censured if this is not carried out. Newcomers need to obtain a work visa, residence permit and register for tax upon commencing or signing contracts. The employer should arrange this for the employee. This is a serious issue and only gets potentially worse every month it is ignored. At some point, when an individual’s stay in China ends, they will have to reconcile with the authorities over their income. Immigration records, visa type and length of stay information are shared between the immigration authorities and the tax bureau. Those in doubt over their situation should seek a professional who can assist.
Chief representatives and general managers
When appointed, chief representatives of representative offices are subject to IIT from the first day they commence work in China. Should a chief representative not actually visit China within a calendar year, but continue to act as the chief representative of an RO, then zero tax filings should still be made monthly to the local authorities. For chief representatives who visit China, taxes need to be paid on a pro-rata basis, calculated upon the days they are in the country.
Senior managers of Chinese limited companies, wholly foreign-owned enterprises or joint ventures in China from Norway, Canada, Sweden, Thailand, Pakistan, Jamaica, Portugal and Kuwait – countries that have a ? senior manager? clause in their double tax agreement with China ? are subject to IIT from their first day in China. Senior managers are defined as company chiefs, deputy general managers, persons occupying functional chief positions, chief supervisors and other persons occupying similar management level position. Other expatriates are liable only after spending 183 days in the country (or 90 if from a country with which China does not have a double tax treaty). According to law, they should declare the full salary for the position and pay IIT.
Businessmen in and out of China
Foreigners who hold concurrent posts both in China and elsewhere (and usually traveling on a business visa) are subject to IIT based on the number of physical days they are in China. This is assessed upon the total salary they are claiming from their local employment position and from the parent company overseas ? the Chinese tax bureau may want to see proof of earnings from the parent (tax slip, payment voucher, etc). At the end of each month, the China office will need to take copies of the individual?s passport, together with the entry/exit stamps for that month, and file and pay taxes based upon the number of days spent in the PRC. The tax bureau will issue a receipt which can be credited against the tax paid in the individual?s resident country.
T he Chinese government regards individuals as tax residents when they have stayed in China for more than five years without residing outside the PRC for more than 90 days cumulatively each calendar year or 30 consecutive days within a single calendar year. A tax resident is required to pay IIT on their worldwide income without limitation of source, meaning that income elsewhere related to property rentals or interests will also needs to be declared to the Chinese tax authorities. The taxes paid overseas can be deducted from the taxes payable to the Chinese tax authorities.
Applying for Work Visas and Related Documentation
PART A: EXPENSES AND DEDUCTIONS
On January 1, 2008, China launched its revised corporate income tax (CIT) regime. The new CIT law was based on the unification of the previous Enterprise Income Tax (EIT) Law for local enterprise and the Foreign Enterprise Income Tax (FEIT) Law for foreign invested enterprises.
According to the new CIT law, both domestic and foreign invested enterprises in China now have the same tax rate of 25 percent, regardless of whether an enterprise enjoyed tax incentives or holidays before 2008 (enterprises previously enjoying tax incentives were granted grandfather rules to either gradually increase their tax rate to 25 percent over five years percent or enjoy a tax holiday over five years.)
Compared with the previous EIT and FEIT laws, the new tax law included several changes to expenses deductions. As 2008 is the first year enterprises will have to comply with the new CIT law, we take a brief look at the main expense deductions enterprises can file in at the end of the year.
Advertising expense and business promotional expenses
Business entertainment expenses
Commercial insurance expenses
Staff education expenses
General accounting treatments on significant audit areas(0)
All foreign invested enterprises in China are required to prepare annual financial statements, including balance sheets and income statements for their annual Chinese audit. Such accounts must be in accordance with the Chinese accounting standards for business enterprises ? there are now no differences between standards for domestic and foreign enterprises.
Foreign invested enterprises (FIEs), including their legally responsible persons, must take full responsibility for the truthfulness, legitimacy and completeness of these financial statements. These documents must be completed ahead of the submission of consolidated accounts for tax purposes by the end of April every year, for the financial calendar year ending the previous December 31.
These statements will be used for computing the FIEs taxable and distributable profit. Accordingly, an annual audit by a firm of certified public accountants registered in the PRC is required under Chinese law.
Generally speaking, enterprises could provide reasonable bad debt according to ending balance of account receivable account. However, the tax authority has the power to adjust any unreasonable provided bad debt.
China?s Annual Corporate Tax Considerations
Annual License Reviews and Audit Procedures(0)
Many foreign-owned businesses in China are familiar with the requirement to submit to an annual audit, however many overseas executives of such businesses are unaware that there are a number of other, vitally important annual license review issues that need to be applied for at the same time. This issue of China Briefing accordingly describes what these are in order for foreign companies operating in China to be fully aware of them and take the appropriate steps to ensure they are completed. If not, the business administration processes in China that help the company to operate can fail, leaving you effectively paralyzed and unable to trade.
The annual audit process then in China is not purely just about financial issues. You also have to submit a range of other documents and licenses to the authorities for checking and renewal if necessary?the so-called annual co-operative examination. This is a bureaucratic process, but it is a good time to take stock and ensure all your paperwork is up to date.
Luckily, the authorities do try to make it is easy as possible for you?you can either submit your details via the internet, or by going to an office where officials from a total of seven different agencies come together temporarily for this process.
These seven agencies are (almost) the same as the ones to which you have to submit your audited accounts:
General accounting treatments on significant audit areas
Emerging Asian Countries to Watch : Cambodia India(0)
Here we list some countries to watch.
The Cambodian economy has seen rapid progress in the last decade. Per capita income, although rapidly increasing, is low compared with most neighboring countries and a large part of the country still relies on agriculture. Manufacturing output is varied but is not very extensive and is mostly conducted on a small-scale and informal basis. The service sector, driven by the country?s fairly large tourism industry based around the UNESCO World Heritage site of Angkor Wat, is heavily concentrated in catering-related services and trading activities.
Cambodia?s GDP grew an estimated 9.6 percent in 2007, about the same rate of growth the economy experienced from 2000 to 2006. Garment exports, by far Cambodia?s biggest industry, rose almost eight percent in 2007, while tourist arrivals, another big industry in the country, jumped nearly 35 percent. Foreign direct investment reached US$600 million, or about seven percent of GDP (slightly more than Cambodia received in official aid). Domestic investment, driven largely by the private sector, accounted for 23.4 percent of the GDP. Approximately 2,860 new businesses registered for operation in 2007, a 71 percent increase over 2006.
Concerned about inflation, the Cambodian government has also recently announced that it will spend more than US$300 million per year to keep gasoline and electricity prices down. “We will continue to support prices until oil drops below US$900 a ton,” Cambodian Minister of Economy and Finance Keat Chhon told the Phnom Penh Post recently.
Economic pressure from the global downturn will see Cambodia?s growth rate drop in 2008 to around 7.5 percent, reflecting a mix of growth in the services and construction industries and a slowdown in garment exports to the United States. Export growth will continue to slow as consumer spending in the United States slows and increased competition from Vietnam and the lifting of tariffs on Chinese textile exports becomes greater.
While exports will slow, Cambodia, like Vietnam and Laos, will continue to remain fertile for foreign investors interested in large infrastructure projects, as well as manufacturers and retailers focused on domestic markets.
India, the second most populous country in the world after China with a population at 1.1 billion, is currently the world?s fourth largest economy (based on purchasing power parity) and has achieved on average eight percent growth over the past three years. In the first quarter of this fiscal year, India achieved 7.9 percent growth compared to 9.2 percent the same period last year. India?s Finance Minister P. Chidambaram accrued the drop in growth rate to the overall deteriorating global conditions.
In 2007, the Asian Development Bank (ADB) agreed to provide India with up to US$500 million in loans to promote public-private partnerships to catalyze investments in infrastructure of up to US$3.5 billion.
According to the ADB, the serious lack of infrastructure is India?s Achilles? heel and is estimated to have cost the country three to four percent of the GDP annually. Funds will be channeled to the government-owned India Infrastructure Finance Co. Ltd. (IIFCL), which will provide funds at commercial terms with over 20-year maturity for infrastructure projects. This is creating funding avenues that are currently otherwise available.
The IIFCL had developed a financing plan for fiscal years 2007-2011 of US$6 billion, half of which will come from the Indian domestic market, including insurance, pension funds and the National Savings Scheme. The other half will come from international capital markets and bilateral and multilateral sources which include the ADB.
India Prime Minister Manmohan Singh recently told the Indian parliament that India, like other developing countries, was experiencing a “ripple effect” from the deepening world financial crisis and that the country “must be prepared for a temporary slowdown.” However, the Indian financial sector is tightly regulated and banks and financial institutions in the country remain well capitalized, so the sort of financial meltdowns that American and European banks have experienced is unlikely to happen.
Expanding the China Market: How Emerging Asia Will Help Counter the Global Downturn(0)
[ By Andy Scott, Managing Editor, China Briefing ]
It began in Thailand and quickly spread through the rest of the emerging economies of Asia. What had been hailed as ?the Asian economic miracle? and a great achievement by the IMF and the World Bank came crashing down in July 1997 when the Thai baht collapsed. Other regional markets followed and by the time Asia had recovered, President Suharto of Indonesia had been forced to step down, growth in the Philippines had all but stopped, and Malaysia had gone through its first recession in years.
Much like the current crisis, the Asian Financial Crisis came about when banks failed after borrowing heavily, leaving corporations starved for credit and having to drastically cut back on operations. Due to that crisis, most Asia banks are now much more cautious in their lending practices, and so, the current problems affecting Asia are less financial than economical. As part of a global supply chain that has for years trumpeted cheap exports from Asia?notably China?to the West, the Asian countries are now faced with dropping sales and increased prices as global trade slows.
The emerging countries of Asia are now trying to get their citizens to be more like the West, buying instead of saving. Consumer spending accounted for 35 percent of China?s economy in 2007, in the United States, consumers account for nearly 64 percent. Concerned about the impact of their export economies, Asian governments are beginning to implement policies to spur domestic spending. Thailand?s central bank has kept its benchmark interest rate unchanged to bolster confidence after two increases since July, while Vietnam?s central bank cut their benchmark interest rate in October by one percentage point to 13 percent in a bid to free up credit for enterprises. The monetary loosening reversed a series of three hikes this year, from 8.25 percent to 14 percent, which had aimed to reduce liquidity and curb the country’s double-digit inflation. ?Local cash-strapped companies will have the opportunity to get bank loans in order to maintain business and promote investment,? the State Bank of Vietnam said in an online statement.
While Asian consumers may remain wary in the face of the global downturn, governments of the region are hoping that consumers turn from saving to spending.
Emerging Asian Countries to Watch
Purchasing Power Parity: The Smart Way to Buy in China(0)
[ By Chris, Devonshire-Ellis, Senior Partner, Dezan Shira & Associates ]
With the West likely to fall into recession during the next couple of years, now is a good time to evaluate purchasing polices from emerging markets as the household pinch on buying products extends up the supply chain to the source of product?in this case, China (although this perspective can also be applied to other currencies such as those in Mexico, Brazil, India, Russia).
Purchasing power parity is the art of recognizing the true value of the local currency, and applying that to buying techniques. Let?s take for example, the U.S. dollar and the RMB. According to conventional wisdom and current exchange rates, the U.S. dollar is valued at US$1 = RMB6.8. In fact, the two currencies are rather more similar than is commonly acknowledged.
Both currencies have the unit of 100 as their largest denomination. Both feature pictures of deceased leaders. Both are the most sought after valued note in their respective nations. Yet, according to the current exchange rates, the RMB100 is only worth about US$15 (give or take a few cents). Yet purchasing power parity holds that in China, the RMB100 note will buy the same quantity of goods or services as the US$100 will in America; in which case, the two notes are essentially identical in their respective domains concerning their ability to purchase.
Expanding the China Market: How Emerging Asia Will Help Counter the Global Downturn
Managing Your China Business during a Global Downturn(0)
[ By Chris, Devonshire-Ellis, Senior Partner, Dezan Shira & Associates ]
Much has occurred over the past few weeks, with stock markets plunging, banks in crisis and governments worldwide having to step in to rescue their ailing financial institutions. Although an international government bailout of taxpayer money appears to have stopped a complete meltdown of the global economic system, there remains no doubt that the consumer boom in the West over the past couple of decades is going to slow down. With many businesses in China geared towards supplying that boom, now is the time to look at practical considerations when managing your business in China.
In this issue we will look at businesses on the ground in China, businesses buying from China but based abroad, the implications for the Chinese economy and developments here, and also at other, regional emerging markets and what new opportunities they might offer.
On the ground in China
What to look out for:
Make no doubt about it, if you are supplying customers in the United States or Europe, they will be looking to change the balance of their relationship with you. In short, to remain their supplier, they will want you to fund more of their business. That means they will delay paying their invoices, and will extend credit terms, even without asking. You need to ensure that your contracts with them are tight, define credit terms and also define late payment penalties if they fall beyond say, 60 days.
In today?s interconnected world, payment should not really fall much beyond 45 days?six and a half weeks. If it does, they are simply using your money to fund their cash flow. You need to be strict about it and insist on payment according to contractual terms. This may mean making a nuisance of yourself until they get the message. This may prove difficult if you have a good relationship with them, but if they start to abuse that relationship it?s time to start calling the shots.
To deal with this you must pay attention to your own business cash flow and start to plan it out. This means looking at all of your overheads, working out when these are due, (not when you can pay them) and looking at what money you can realistically expect in to cover these amounts. Be honest, and be tough. If you?re not sure if someone will pay on time, don?t rely on it. These are not blue sky times we are talking about, and you need to get a large dose of reality into your cash flow to work out the true extent of any problems and what you need to do about them.
Purchasing Power Parity: The Smart Way to Buy in China
Dealing with infringements(0)
The ?set-up? day of the trade fair, therefore, can be well used also to walk around the stands and search for infringing products. It is also useful to pay a visit to the booth of the complaint center or the local enforcement authority.
In cases where a potential infringing product is detected, it is important to obtain as much information as possible about the exhibitor and the product. A digital camera or a camera-phone might be useful to secure evidence. Brochures, business cards and other types of literature are all helpful to support enforcement action.
After detecting a potential infringer, the rights holder has to decide whether or not to take action. If action is taken, the company has to decide which legal means can and should be used to fight the infringer, according to the information it receives from the local enforcement authorities and its own local lawyer. If action is taken at an exhibition, it might be necessary to follow up with the authorities to ensure that appropriate prosecutions take place.
Protecting your IPR
Filing for intellectual property rights in the form of patents or trademarks entitles a person or a company to use all legal means defined by law in case of infringements. However, these rights do not ?protect? the content of intellectual assets. It is highly recommended to combine IP rights with protection mechanisms that ensure that crucial information cannot be retrieved easily from disloyal employees or criminal outsiders. In some cases, protection measures can be more effective than a patent, e.g. the product cycle is much shorter than the time needed for a patent registration. For products with short life cycles, filing for a utility model may be more useful than a patent as the examination period is much shorter.
Strict confidentiality is one of the best protection methods and should be a main concern, especially with long-lasting products or technologies. In general, the protection of sensible information is mandatory and can be achieved by implementing some common-sense rules, such as access control and prohibiting downloads from PC stations. However, sometimes simply the fact that a product is in the market does not allow keeping a technology confidential as many technological traits can be re-engineered. In most cases confidentiality is used to protect recipes or production procedures that cannot be simulated easily. The recipe of Coca-Cola is a well-known example for keeping a combination of ingredients secret much longer than the life-time of a patent.
Technological development allows a variety of protection measures that can be applied for all kinds of products.
According to security experts, protection can be achieved by using three to ten security features and also by changing them on a regular basis in order to make illegal copying even more difficult.
When deciding which security feature might be feasible it should be taken into consideration whether the measure serves as a preventive protection against counterfeiting or a means of generating evidence in case of a lawsuit or administrative action against illegal copies. Preventive measures include all features that can be recognized by non-experts and without technical support (see Level 1 in the table), such as safety features on money bills. Measures that provide evidence are usually hidden and demand a complex procedure.
Measures that allow a continuous tracking of each product guarantee the highest standard of protection against counterfeiting. However, the implementation of such a complex tracking system is expensive and may not be justified although those measures also have a positive secondary effect in terms of quality control and logistics.
No matter whether a company decides to use preventive or evidence securing measures or tracks the whole production and distribution chain, if an infringement occurs the company needs explicit rights to fight the counterfeiter. Without a trademark, design patent, invention patent or utility model there is no legal foundation to prevent a counterfeiter from using another company?s intellectual rights. A reasonable combination of technical safety measures and intellectual property rights increase the probability that counterfeiters may stop the infringing activities or chose another victim with less protection.