1、Doing Business in ChinaApril 2022Doing Business in China 1ContentsForewordCountry ProfileBasic InformationMacro EconomySocio-cultural FactorsPolitical and Legal FactorsFinancial SystemInvestment EnvironmentForeign Direct InvestmentImports,Exports,and Bonded ZonesRegional Comprehensive Economic Partn

2、ership Agreement(RCEP)Free Trade Zones Hainan Free Trade PortCompliance GuidanceExchange Control Legal SystemBusiness Entities Labor LawAccounting Standards and AuditTaxation Tax Incentive Solutions for Foreign Investment in China12141516 171819 21222329 30ForewordIn year 2021,the first y

3、ear of Chinas 14th Five-year Plan,the Chinese government established a new development paradigm“that with the domestic market as the mainstay and domestic and overseas markets reinforcing each other to cope with the increasingly complex domestic and international political and economic environment a

4、midst the continuous spreading of the global epidemic and major changes in energy,climate and international trade arenas.Report on the Work of Government in early 2022 proposes that we should unswervingly deepen the reform,stimulate the market vitality and endogenous driving force of development.Cen

5、tering on the establishment of international commercial condition with marketization and legalization,we will continue to expand market access,accelerate to establish and improve an all-round,multi-level and multi-dimensional supervision system,further to promote the implementation of fair competiti

6、on policy and maintain a fair and orderly market environment,as well as to promote the common growth of various ownership economies.It demonstrates the determination of the Chinese government to unceasingly attract foreign investment and create a good business condition.Foreign-invested enterprises

7、shall be an important component of Chinas market economy.Given these backdrops,we have sorted out the most recent policies related to foreign investment and updated this Doing Business in China guide with the aim of helping foreign investors doing business here.As a professional firm that has served

8、 foreign-invested enterprises for more than 40 years,Grant Thornton will offer our best quality financial and tax services to support our clients continuous business development.Mr.Pan XiaodongHead of Business Process Solutions(BPS)Tax Partner Grant Thornton ChinaDoing Business in China 32 Doing Bus

9、iness in China Country ProfileBasic Information2021 Key Figures about China1.4 billionPopulation9.6 million km2Land Area17.7 trillion USDGDPChina,the 2nd largest economy and the most populous country in the world,has witnessed immense economic growth in the past decades that has greatly improved the

10、 quality of life of its people.Provinces and CitiesThere are 34 provincial-level administrative regions in China,including 23 provinces,five autonomous regions,four municipalities,and two special administrative regions(Hong Kong and Macau).The most developed economic zones are concentrated along fou

11、r major city clusters:Beijing,Shanghai,Guangzhou,and Chongqing.Local LanguagesAs one of the most linguistically diverse countries in the world,China has over 300 spoken languages.Mandarin is the official language spoken by over 70%of the population，but there also exists several other major dialects

12、such as Cantonese and Hakka.The non-Chinese languages include Mongolian,Tibetan,Uyghur and Korean.Local CurrencyCNY,Chinese Yuan(also called Renminbi or RMB).Beijing-TianjinCity ClusterShanghai-HangzhouCity ClusterGuangzhou-ShenzhenCity ClusterChongqing-ChengduCity ClusterCountry ProfileDoing Busine

13、ss in China 54 Doing Business in China Macro EconomySince the launch of the Economic Reform and Opening-up initiatives in 1979,Chinas economy has undergone tremendous development.In 2001,China officially joined the World Trade Organization(WTO).In 2010,China became the worlds second largest economic

14、 power in terms of GDP.And in 2021 as a milestone moment,the economy of China surpassed the total of the European Union(EU),for the first time.Benefiting from the large-scale capital investment and rapid productivity growth,China kept the high GDP growth rate amazingly for past decades.According to

15、preliminary estimation,the GDP in 2021 was 17.7 trillion USD,up by 8.1%over the previous year with the average two-year growth of 5.1%,which accounts for 18%of the global economy,1.0%higher than that of 2020.Disposable Income per CapitaIn 2021,the disposable income per capita nationwide was$5,445 US

16、D,an increase of 9.1%over that of the previous year or a real increase of 8.1%after deducting price factors.Salary LevelThe average salary of urban employees in China reached$14,118 USD in 2020.The top-ranked high-income industries include IT,Computers and Software,Science and Technology Services,Fi

17、nancial Sector.Source:The National Bureau of Statistics of China;Based on yearly average CNY-USD exchange rateAverage Salary by Industry(USD,2020)Employees Average SalaryIT,Computers and SoftwareScience and Technology ServicesFinancial SectorCulture,Sports and EntertainmentTransport and LogisticsMin

18、ing IndustryRetail and WholesaleManufacturing IndustriesHotels and Restaurants 14,118 20,276 19,339 16,250 14,591 14,016 13,994 12,002 7,080 25,741 Socio-cultural FactorsSource:The Payment&Clearing Association of China“Social Responsibility Report of China Payment Industry”;Based on yearly average C

19、NY-USD exchange rate Bank Card Online Pay(Websites,Apps)Mobile Pay(NFC,QR Code)(Transaction values in trillion USD)Payment data addedGDP Chart updatedReligionThe Chinese government adopts the policy of freedom of religious beliefs.The major religions are Buddhism,Taoism,Christianity and Islam.Online

20、 and Mobile PaymentIn the past years,the transaction value of online and mobile payments has been on a steady rise surpassing that of bank card payments.The most popular online payment platforms in China,supporting both domestic and international transactions are,AliPay and WeChat Pay,these platform

21、s are similar to PayPal or Apple Pay.Internet UsersIn 2021,73.0%of population are connected to Internet,and 87.6%out of them are mobile payment users.General working daysPublic HolidaysOffice(including governments):Monday to FridayBanks:Monday to SundayShops and restaurants:Monday to SundayNew YearJ

22、anuary 1stDragon Boat FestivalOne day in JuneChinese New YearThree days in Januaryor FebruaryMid-Autumn FestivalOne day in September or OctoberTomb-Sweeping DayOne day in early AprilNational DayOctober 1st-3rdLabour DayMay 1st2017 112.69 307.0251.222018130.31321.3973.382019128.31309.0286.412020128.7

23、4315.27105.362021155.33364.87136.78Source:The National Bureau of Statistics of China;Based on yearly average CNY-USD exchange rateNominal GDP(Trillion USD)20000820003200720005200920.31.514.717.714.313.912.311.211.110.59.68.57.66.15.14.63.62.82.3

24、2.01.72021-50.00150.00250.00350.00100.00200.00300.00400.00Country ProfileCountry ProfileDoing Business in China 76 Doing Business in China Political and Legal FactorsThe Political System21 MinistriesThree CommissionsOne Central BankOne National Audit OfficeThe Peoples courts of various levels exerci

25、se judicial power independentlyThe Peoples procuratorates of various levels execute procuratorial power independentlyThe Peoples Congresses system is the fundamental political system,that works under the leadership of the Communist Party of China(CPC).The State power is exercised through the Communi

26、st Party,the Central Government,and their provincial local counterparts.Apart from the Communist Party,there are 8 other democratic parties participating in the political process.The Legal SystemThe fundamental laws of China are governed by the Constitution,and the legal system comprises of constitu

27、tional,civil,commercial,administrative,economic,social,criminal,litigation,and non-litigation procedural laws,along with other legal branches.The National Peoples Congress exercises national legislative power and the State Council formulates administrative regulations.Financial SystemThe Central Ban

28、k and Commercial BanksThe Foreign Exchange ControlRestructured as BSE in 2021.The Peoples Bank of China(PBOC)is the central bank of China responsible for formulating monetary policies and fiscal regulations,while China Banking and Insurance Regulatory Commission(CBIRC)supervises the banking and insu

29、rance sectors in China.Out of the significant number of commercial banks in China,the following five are the largest state-owned commercial banks:The Capital MarketChina Securities Regulatory Committee(CSRC)exercises a unified regulatory function over the securities and future market of China and en

30、sures a legal operation of the capital market.In September 2021,China launched the Beijing Stock Exchange(BSE)for the sake of finance innovative start-ups,and acts as a third stock exchange in China,in addition to the Shenzhen and Shanghai exchanges.The BSE adopts the registration-based initial publ

31、ic offering system,which is more inclusive for Small and Medium Enterprises(SMEs)with lower listing thresholds,diverse evaluation standards,and a shorter approval time.The countrys total market capitalization was around$14.24 trillion USD in 2021,ranked the 2nd in the world.The State Administration

32、of Foreign Exchange(SAFE)under Peoples Bank of China is Chinas foreign exchange regulatory agency that plays an essential role for companies in China.Essentially,it is necessary for all foreign-invested enterprises in China to obtain foreign exchange approval from SAFE to transfer funds to or from a

33、 foreign country.Bank of ChinaIndustrial and Commercial Bank of ChinaAgricultural Bank of ChinaChina Construction BankBank of CommunicationsMain BoardSci-Tech Innovation BoardOver-The-Counter MarketExchange Market Main BoardInnovation TierBase TierSelect Tier Small-Medium Enterprise Board Growth Ent

34、erprise Board(ChiNext)Capital market structure addedStock exchanges on the Chinese mainlandShanghai Stock Exchange(SSE)Shenzhen Stock Exchange(SZSE)Beijing Stock Exchange(BSE)National Equities Exchange and Quotations(NEEQ)The National Peoples CongressThe State CouncilThe Supreme Peoples CourtThe Sup

35、reme Peoples ProcuratorateCountry ProfileCountry ProfileDoing Business in China 98 Doing Business in China Investment EnvironmentForeign Direct InvestmentEase of Doing BusinessInbound InvestmentChinas investment environment has substantially improved in the past decades.Based on the World Banks 2020

36、 annual report on the“Ease of Doing Business”,China was ranked as the 31st most conducive business environment,a drastic improvement from the 91st position in 2010.Chinas inbound foreign direct investment(FDI)has been on a steady increase since the 1990s.This was further bolstered when China joined

37、the World Trade Organization in 2001.As of 2020,Chinas FDI value amounted to$149 billion USD,accounting for 15%of the total share and ranking as the second in the world.The foreign direct investment from Hong Kong contributes to more than two-thirds of Chinas overall FDI.This is because most foreign

38、 investments choose to enter China through Hong Kong,since Hong Kong adopts a similar legal system to that of the UK and has been ranked as the worlds freest economy.FDI share by region(2020)Source:The Ministry of Commerce of China.“Statistical Bulletin of FDI in China”Realized FDI Value(Billion USD

39、)2062012020149Source:The Ministry of Commerce of China,“Statistical Bulletin of FDI in China”Hong Kong,70.8Others,5.2Free Ports,6.3N.America,1.7Europe,3.8Asia Other,12.20140150Investment EnvironmentDoing Business in China 1110 Doing Business in China FDI by IndustryT

40、he industries that total up to a significant amount of Chinas FDI are the High-end manufacturing and high-tech industries.Source:The Ministry of Commerce of China,“Statistical Bulletin of FDI in China”Realized FDI Value by industry(billion USD,2020)Manufacturing IndustriesLeasing and Commercial Serv

41、icesReal EstateScience and Technology ServicesIT,Computers and SoftwareRetail and WholesaleFinancial SectorTransport and LogisticsPublic UtilitiesConstruction3120.3317.9416.4311.8411.465.003.111.8226.56Imports,Exports,and Bonded ZonesImports and ExportsBonded ZonesAs of the end of 2021,there are a t

42、otal of 168 Special Customs Supervision Areas in China,including 155 Comprehensive Bonded Areas and 13 other types of special areas.These areas play an important role in the international industrial transfer and foreign trade.Source:The National Bureau of Statistics of China;Based on yearly average

43、CNY-USD exchange rate Goods Exported(trillion USD)Goods Imported(trillion USD)Chinas exports kept rising year over year.In 2021,Chinas trade surplus reached to$677 billion,the largest ever,and up about 30%from the previous year.20172.3200211.82.12.12.12.72.52.52.63.4The Number of Foreign

44、CompaniesEvery year,the increasing number of the foreign-invested enterprises(FIEs)in China shows a growing trend.Source:The National Bureau of Statistics of ChinaNumber of FIEsFDI by ProvinceThe top ten provinces of realized FDI value were Jiangsu,Guangdong,Shanghai,Shandong,Zhejiang Beijing,Tianji

45、n,Fujian,Sichuan,and Liaoning,altogether accounting for 85%of the national total.The major city clusters attracting the most FDI in China are Shanghai,Beijing,Hangzhou,Shenzhen,and Guangzhou,the latter two benefiting most from their location to Hong Kong.Source:The Ministry of Commerce of China,“Sta

46、tistical Bulletin of FDI in China”Realized FDI Value by Province(billion USD,2020)Jiangsu GuangdongShanghaiShandongZhejiangBeijingTianjinFujianSichuanLiaoning23.5219.0117.6515.7813.394.744.44.2.552.5223.440102552015Top Export Destinations(billion USD,2021)United StatesEuropean UnionSouth KoreaASEANI

47、ndiaHong Kong,ChinaTaiwan,ChinaJapanRussiaBrazil484983554519577South Africa21500,000550,000600,000650,0002016505,1512017539,3452018593,2762019627,2232020635,402Investment EnvironmentInvestment EnvironmentDoing Business in China 1312 Doing Business in China Regional Comprehensive Economic

48、Partnership Agreement(RCEP)After eight years of negotiations,the Regional Comprehensive Economic Partnership(RCEP)agreement was signed on November 15th,2020.The RCEP agreement entered into force on January 1st,2022 for ten members including six ASEAN countries-Brunei,Cambodia,Laos,Singapore,Thailand

49、 and Vietnam,and four non-ASEAN countries-China,Japan,New Zealand and Australia.The RCEP has also subsequently taken into effect in two more members-South Korea and Malaysia.The RCEP includes ten ASEAN members,China,Japan,the Republic of Korea,Australia and New Zealand.The 15 states total population

50、,gross domestic product and trade all account for about 30%of the world total.After the agreement takes effect,more than 90%of merchandise trade among members that have approved the agreement will eventually be subject to zero tariffs.With optimized trade rules among signatories,streamlined procedur

51、es and wider opening-up in the sectors of services-trade and investment,the RCEP agreement will bring tangible benefits to the member countries.The implementation of the RCEP agreement is a new milestone in Chinas opening-up and will inject new impetus into Chinas and the worlds economic growth.Chin

52、a government commits to fully implement the obligations of the RCEP agreement and guide local governments,industries and enterprises to better seize the opening-up opportunities.Investment EnvironmentInvestment EnvironmentDoing Business in China 1514 Doing Business in China Free Trade ZonesFrom Augu

53、st 2013,when the first Free Trade Zone was set up in Shanghai,to the end of 2021,a total of 21 provinces of China have established Free Trade Zones in 67 areas.Each zone consists of 3-6 specified administrative areas that enjoy favorable policies and less restrictions.All business sectors are allowe

54、d in the free trade zones,with the exception of those on the“Negative List”for market access of foreign investment.Originally,there were 190 items on the Negative List,but in 2021,this number has been reduced to 27.According to government statistics,the established Free Trade Zones contributed betwe

55、en 13%to 18%of both foreign investment and international trade in China.Source:official website of each Free Trade ZoneHainan Free Trade PortHainan province is a tropical island at the southernmost of China.It has been a free trade zone since 2018 and is in course of upgrading to a whole-island free

56、 trade port.The overall plan focuses on Six aspects of freedom and convenience,highlights Hainans characteristics and builds One modern industrial system to cooperate with Four aspects of system construction.In 2021,the Hainan Free Trade Port Law of the Peoples Republic of China came into force on t

57、he date of promulgation.Liberalization and facilitation of trade and investment are important parts of the law.More detailed policies and practical guidance are expected from the competent authorities to facilitate the strategies of building it to a world class free trade port.Trade and investment F

58、reedom of investment Free flow of cross-border funds Freedom of entry and exit for personnel Transportation Safe and orderly flow of data Make best efforts to develop-Tourism-Modern service industry-High-tech industry Tax Social governance Legal system Risk prevention and controlSix aspects of freed

59、om and convenienceOne modern industrial systemFour supporting systems614Investment EnvironmentInvestment EnvironmentShanghai(5)240.22 km2Shandong(3)119.98 km2Jiangsu(3)119.97 km2Anhui(3)119.86 km2Henan(3)119.77 km2Hebei(4)119.97 km2Beijing(3)119.68 km2Fujian(3)118.04 km2Zhejiang(6)239.45 km2Hubei(3)

60、119.96 km2Tianjin(3)119.9 km2Liaoning(3)119.89 km2Heilongjiang(3)119.85 km2Guangdong(3)116.2 km2Hunan(3)119.76 km2Hainan(1)354000 km2Chongqing(3)119.98 km2Guangxi(3)119.99 km2Sichuan(3)119.99 km2Yunnan(3)119.86 km2Shaanxi(3)119.95 km2Doing Business in China 1716 Doing Business in China Compliance Gu

61、idanceExchange ControlTransactions in non-Renminbi currencies are subject to the administration of the Chinese government.The competent authorities are the State Administration of Foreign Exchange(SAFE)and the Peoples Bank of China.An administered floating rate system based on market supply and dema

62、nd shall be implemented by the competent authorities for Renminbi exchange rates.Financial institutions must obtain approval from the SAFE and obtain licenses for foreign exchange operations.Unless otherwise stipulated,no pricing and/or settlement shall be made in foreign currencies within the terri

63、tory of China.All cross-border foreign currency transactions shall be reported to SAFE accordingly.Different administrative rules are implemented on current and capital account transactions.Despite the gradual opening during last two decades,various supporting documents are still required by the fin

64、ancial institutions when settling the foreign currency transactions.Compliance GuidanceDoing Business in China 1918 Doing Business in China Legal SystemBusiness EntitiesMarket accessA company is managed by the directors who are elected by the shareholders.A company may establish a board of no less t

65、han three directors who shall form the final decision-making body.It is not compulsory to have a management board,but it is to have at least one executive director and one supervisor.There is no specific nationality requirement for the directors or the executive director.In addition,a board of no le

66、ss than three supervisors or one supervisor for small business shall be assigned.There is no specific nationality requirement for the supervisor(s).Overview of the Chinese Legal SystemDispute ResolutionThe Chinese legal system is officially recognized as the Socialist legal system with Chinese chara

67、cteristics.It comprises of the Constitution,administrative regulations,and local decrees.It also consists of multiple national laws such as constitution law,civil law,commercial law,administrative law,economic law,social law,criminal law,procedural law and non-procedural law.The Civil Code of the Pe

68、oples Republic of China,that came into effect on January 1 2021,is made up of chapters on general rules,property rights,contracts,personality right,marriage and family,inheritance,tort liability,and supplementary provisions.The original independent laws shall be annulled at the same time.The legisla

69、tive power of the state lies with the NPC and its Standing Committee,along with the power to formulate the laws.The process of resolving civil disputes generally include reconciliation,mediation,arbitration and litigation.When signing a civil and commercial contract,the commercial subject must agree

70、 to the dispute resolutions method through the dispute resolution clause,which is generally litigation or arbitration.Litigation is the submission of a dispute to a competent court for consideration and judgment.Chinas court system consists of the Supreme Peoples Court,local peoples courts at all le

71、vels,and the special peoples courts.Arbitration refers to the submission of a dispute to the arbitrator agreed upon by both parties who makes a binding decision on the disputes.Parties to Sino-foreign contracts may agree to an overseas arbitration center for dispute resolution.The arbitration shall

72、be conducted in accordance with a valid arbitration agreement signed by both parties,which shall exclude the jurisdiction of the court.The award of the arbitration shall be final once rendered.Local arbitration institutions include those established in municipalities directly under the Central Gover

73、nment,provincial capital cities,and cities divided into districts.The China government adopts the management system of pre-establishment national treatment and makes reference to the Negative List for foreign investment.The Negative List refers to the special administrative measures for access of fo

74、reign investment in specific sectors as stipulated by the State.The list is regularly updated by the competent authorities.Any activities to be conducted outside the Negative List shall be equally treated as the local companies.Since the implementation of the Negative List in 2018,the items in the c

75、ategories of limitation and prohibition have been reduced by 50%.In addition,special industries shall be subject to qualification certificates issued by the competent authorities.An annual operation report shall be submitted to the competent authority by 30th June of the following year.Various indus

76、trial filings shall also be performed in accordance with the competent authoritys requirement.Foreign investor can operate in mainland China through different legal vehicles.The most common entities used by foreign investors in practice are:1.Wholly-foreign owned enterprise(WFOE);2.Representative of

77、fice(RO);3.Equity joint venture(EJV);4.Branch;5.Partnership;6.Non-profit organization.Total investment The total investment includes registered capital and foreign loans.There is no minimum level for the registered capital,but the amount shall be in line with the projected operation volume of the co

78、mpany and should be registered with the competent authority.The registered capital subscribed and the injection schedule shall be provided in the Article of Association.The foreign loans shall be subject to limitations depending on the level of the total investment.Management and officersFiling requ

79、irementBusiness entitiesCompliance GuidanceCompliance GuidanceDoing Business in China 2120 Doing Business in China A wholly-foreign owned enterprise is a legal entity with limited liabilities being 100%owned by foreign investors.Accountants and lawyers can assist with the formation of a WFOE,and the

80、 entirety of this process normally takes three to six months or even shorter in some free trade zones.The registration authority is the State Administration for Market Regulation.Although the Company Law provides for a foreign company to register a branch in China,under prevailing practice,only regi

81、stration applications from the overseas companies in the financial services sector and oil explorations industries may be approved.Labor LawOther Salient Points Implement proper labor standards(including wages,social insurance and working hours),and provide the corresponding labor conditions and lab

82、or protection;Inform employees of work requirements and labor remuneration by signing contracts or written notice with employees;The employees wage during the probation period shall not be lower than the minimum wage of the same position,or 80%of the agreed wage after the expiration of the probation

83、 period,and shall not be lower than the minimum wage standard set by the local government;Respect employees different ethnic customs and religious beliefs,and do not discriminate against employees;Supervise and ensure the Chinese and foreign employees apply for the work certificates as stipulated by

84、 the government authorities during the employment period;Stipulate the company rules and regulations according to the laws and train the employees to maintain discipline and obey the laws;File and pay the social insurances and housing fund for employees in accordance with the laws and regulations;Fi

85、le and pay the trade union dues,disabled security fund and other related fees in accordance with the laws and regulations.The Labor Law in China is a combination of the labor of the Peoples Republic of China(1995)and the law of the Peoples Republic of China on Employment Contracts(2008).The Labor La

86、w includes the below provisions:Maximum working hours.Paid annual leave.Minimum wage guarantee.Special labor protection for female workers and underage workers.Social insurance system and funds to enable workers to obtain help and compensation in the case of old age,illness,work-related injury,unemp

87、loyment and/or childbirth.Resolution of labor disputes.Wholly-foreign owned enterprise(WFOE)Representative office(RO)Not being a legal entity,a representative office can be established by a foreign company to render preparatory services such as liaison,coordination and market research on behalf of i

88、ts parent company.It is important to note that a representative office cannot engage in any direct profit-making activities.No investment requirements are imposed on a Representative office.Accountants and lawyers can assist with the formation of a representative office.The process normally takes tw

89、o to four months.The considered profit rate is usually applied to a RO for determining the ROs tax liabilities.Equity joint venture(EJV)An equity joint venture is a limited liability Chinese legal entity,formed by one or more Chinese parties and foreign parties.It is a distinct and separately taxabl

90、e legal entity.Investors in an equity joint venture share profits and losses strictly in accordance with their respective contributions to the registered capital of the venture.BranchPartnershipForeign investors are only permitted to form partnerships in China,either as general or limited partners u

91、nder the foreign-invested partnership rules,to engage in a wide range of business activities.Non-profit organizationThere are different application procedures based on the nature of the company and its industry of specialization.A limited number of non-profit organizations(or non-government organiza

92、tions)can obtain permits and operation license from the local government.Market exitForeign investors may exit the China market through the pattern of capital reduction,transfer of interest(equity or asset transfer),or company de-registration.In addition to the legal procedures,tax consequence is al

93、ways one of the major factors to consider in an exit strategy.Compliance GuidanceCompliance GuidanceDoing Business in China 2322 Doing Business in China Accounting Standards and AuditAccounting standards Accounting Standards for Small-sized Business Enterprises applies to small companies that are no

94、t financial institutes or group companies,with no publicly traded stock and/or bond,and meet the thresholds(by industry)set by the authorities.Although the book-tax differences could be minimized by adopting this accounting standard,small companies still have the freedom to adopt CAS or ASBE.Taxatio

95、nCapital gainsCapital gains and losses are treated in the same manner as other taxable income and losses.However,PRC-sourced capital gains derived by Non-TRE,such as gains from the disposal of a FIE,are subject to a 10%withholding tax(unless a double tax treaty/arrangement applies).Tax lossesTax los

96、ses can be carried forward for a period of no more than five years to offset against future taxable income.The period of carry forward for tax loss is extended to ten years for some special industries.Tax losses cannot be carried back.Foreign tax creditAny foreign tax paid is subject to foreign tax

97、credit with the upper limit of the CIT liabilities calculated in accordance with the Chinas CIT rules.Any uncredited foreign tax shall be carried forward to five years.Filing requirementsThe calendar year is used as the tax year.A quarterly income tax return is required to be filed within fifteen da

98、ys from the end of each quarter.An annual income tax return is required to be lodged before 31 May each year.Tax resident enterprisesThe CIT law introduces the concept of Tax Resident Enterprise(TRE).TREs are subject to CIT on their worldwide income.Place of Registration,operation and management are

99、 the criterions used to determine TRE.If either of them is located in China,the Enterprise will be considered as a TRE or a non-TRE.Non-TREs are taxed on their China-source income only.Tax rateThe standard tax rate is 25%.The preferential tax rates are applied to encouraged businesses and small and

100、medium-sized enterprises(SMEs)with low profit.Withholding taxThe dividends,interest and royalties paid to a resident enterprise are not subject to withholding tax,but are being included in the taxable income of the recipient resident enterprise and taxed accordingly,except where exempted.If a foreig

101、n enterprise not established in China derives income in the nature of interest,rent and/or royalties,it will be subject to value-added tax at their corresponding standard rates and withholding income tax at a standard rate of 10%under CIT law(unless a double tax treaty/arrangement applies).China has

102、 a vast treaty network and has currently entered into double taxation agreements with about 109 countries in the world as well as Hong Kong and Macao special Administrative Regions.Corporate income taxThe Chinese Corporate income tax(CIT)law provides for the unified tax treatment for all enterprises

103、 and organizations deriving income within China,from the foreign-invested enterprises(FIEs)established in China to the non-tax resident enterprises.The Ministry of Finance(MoF)is the responsible and ultimate authority for establishing accounting standards used in the preparation of financial stateme

104、nts for all entities.The China Securities Regulatory Commission(CSRC)on the other hand,publishes rules related to financial statement disclosure for listed companies.The following are the three types of accounting standards mainly applied by Chinese companies:China Accounting Standards(CAS)Accountin

105、g System for Business Enterprises(ASBE)Accounting Standards for Small-sized Business EnterprisesOther accounting standards for NPOs and public institutions shall also be applied to specified enterprises.China Accounting Standards(CAS)The China Accounting Standards,issued in 2006 by the MoF,are highl

106、y convergent with the International Financial Reports Standards IFRS.All listed companies and financial institutions are obliged to adopt CAS.Other enterprises,though not mandatory,are also encouraged to adopt CAS.Accounting System for Business Enterprises(ASBE)ABSE has been in place well before CAS

107、.Enterprises that are not required to adopt CAS may choose to adopt either ASBE or CAS.Since CAS is more aligned with IFRS,large and medium-size enterprises and foreign-invested companies,in practice,are more likely to choose CAS.Accounting Standards for Small-sized Business Enterprises Audit requir

108、ementsPracticing Standards for Chinas CPAs,Code of Ethics for Chinas CPAs,was drafted by the Chinese Institute of Certified Public Accountants(CICPA)and approved by the MoF.Practicing Standards consist of:China Standards on Auditing,Review Other Assurance Related Services&Quality ControlThe set of r

109、ules aligns with the International Standards on Auditing(ISA)and applies to audits and review for all kinds of entities.All companies shall prepare annual financial statements and have them audited by certified public accountants in accordance with the Companies Law.Compliance GuidanceCompliance Gui

110、danceDoing Business in China 2524 Doing Business in China Filing obligationThe payer of an individuals income shall be regarded as the tax withholding agent who bears the obligation of withholding and filing the IIT return on behalf of the individual recipient.The individual recipient shall bear eve

111、ntual responsibilities of filing the IIT returns for their income(self-filing basis).Filing requirementThe withholding IIT returns shall be filed by payer(i.e.,employer for employment income)on a monthly basis by the 15th of the following month.After year end,an annual IIT self-filing return shall b

112、e filed by the tax resident between 1st March to 30th June of the following year,if the over or under paid IIT during the year shall be reported for the salary,service,authors remuneration and/or royalty income.Foreign tax creditThe China tax resident shall report the non-China sourced income betwee

113、n 1st March to 30th June of the following year.Any foreign tax paid is subject to foreign tax credit with the upper limit of the IIT liabilities calculated in accordance with the Chinas IIT rules.Any uncredited foreign tax shall be carried forward to five years.Social insuranceThe employer shall bea

114、r the obligation of filing the monthly social Insurances and housing fund for their employees.Self-employed individuals shall file the returns on a self-filing basis.Foreigners who have obtained the Working Certificate shall also participate in the Social Insurance contribution accordingly.The socia

115、l insurance treaty between China and a list of ten countries allows for the filing exemption of certain contents.Tax residentThe 183-day criterion is introduced by the new IIT Law determines the tax residency for non-China domiciled individuals.The China tax resident shall be subject to IIT liabilit

116、ies on worldwide income,whilst the non-China tax resident shall be subject to IIT liabilities on China-sourced income only.The below paragraphs focus on the taxation of comprehensive income(employment income,service fee,authors fee and royalties)in the hands of tax residents.It shall be subject to d

117、etermining the tax liabilities on an annual basis,although the tax-filing shall be performed on a monthly basis.Deductions for tax residents Standard Basic Deduction:RMB 60,000 yuan per annum(RMB 5,000 yuan per month).Specific Deductions:personal portion of the mandatory China social insurances and

118、housing fund applied for China tax resident.Specific Additional Deductions:deductions with upper limits for residents,including expenses for childrens education,further learning,medical treatment for major illness,home loan interest or house rentals,and support for elderly.Tax rate for comprehensive

119、 income for tax resident The seven grades of progressive tax rate of 3%-45%are applied for the IIT calculations.The rate of 45%is applied to the marginal annual taxable income(after deductions)above RMB 96,000.Tax RatesThere are two types of tax payers under the VAT system,a small-scale taxpayer and

120、 a general tax payer.Small-scale taxpayers are chargeable to VAT at the simplified levy rate of 3%on their turnover,and input VAT arising from purchases is not allowed to be set off against the output VAT.General tax payers are chargeable to the applicable tax rate according to different taxable ite

121、ms.The tax rates are gradually reduced during the VAT reform and the updated tax rates for general tax payer as from 1st April 2019 are:Taxable ItemsApplicable Tax Rate%Sales or importation of goods13Provision of repairs,replacement and processing services13Tangible movable property leasing services

122、13Grains,edible plant oil,utilities,publications and certain agricultural products9Transportation services,postal services,basic telecommunications services,construction services,immovable property leasing services,sales of immovable properties,and transfer of land use right9Value-added telecommunic

123、ations services,financial services,modern services(excluding leasing services),consumer services,and sales of intangible properties(excluding land use right)6Exportation of goods;Exportation of repair,replacement and processing services;International transportation services and space craft transport

124、ation services;Exported services that are completely consumed outside China,including Research and development services Energy performance contracting services Design services Production and distribution services for radio,film and television programs Software services Circuit design and testing ser

125、vices Information system services Process management services Offshore outsourcing services Transfer of technology0The VAT Law(Consultative Draft)issued in November 2019,was not yet finalized during the writing of this guide,however,the stipulated provisional regulations are still in force.Individua

126、l income taxThe new Individual Income Tax(IIT)Law took effect on 1st January 2019.Income from employment,service fee income,royalties,authors fee,income from transfer of properties,dividends,bonus and interest income,income from individual household businesses,income from leasing of properties,and i

127、ncidental income are subject to IIT.Value Added Tax(VAT)On 1st January 2012,China commenced the Pilot Collection of Value-Added Tax in Lieu of Business Tax(VAT reform).The VAT reform was launched nationwide on 1st May 2016.According to the China Provisional Regulations for Value Added Tax(Provisiona

128、l Regulations),VAT applies to individuals and enterprises engaged in the sale of goods or processing,repair and assembly services,sale of services,intangible assets,immovables,and importation of goods into mainland China.VAT payable=Output VAT-Input VAT during the periodOutput VAT=Turnover x Tax rat

129、eCompliance GuidanceCompliance GuidanceDoing Business in China 2726 Doing Business in China Consumption Tax(CT)Consumption Tax is levied on individuals or entities that manufacture,subcontract or import into mainland China chargeable items as specified in the PRC Provisional Regulations for Consumpt

130、ion Tax.Those chargeable items include tobacco,alcohol,cosmetics,precious jewelries jade,and stones,firecrackers,processed oil,automobile tires,motorcycles,motor vehicles,golf equipment and golf facilities,luxurious watches,yachts,disposable wooden chopsticks and wooden floor boards.Rates:The consum

131、ption tax shall be computed on the basis of the goods value,volume or the combination of the value and volume(compound tax).Export sale is exempt from CT.The CT Law(Consultative Draft)issued in December 2019,was not yet finalized during the writing of this guide,however,the stipulated provisional re

132、gulations are still in force.Transfer PricingTo facilitate Chinas participation in the OECD BEPS(Base Erosion and Profits Shifting)action plans,Chinas CIT rules provide special tax adjustment regulations,including:Advanced Pricing Arrangement(APA)Cost Contribution Agreement(CCA)Controlled Foreign Co

133、rporation(CFC)Thin capitalization General Anti-Avoidance Rule(GAAR)Other taxesOther principal taxes levied on foreign investors include:Urban Construction Tax and Education Surtax Customs Duty Land Appreciation Tax Property Tax Resources Tax Stamp Duty Urban Land Use Tax Vehicle and Vessels Tax Deed

134、 Tax Environmental Protection Tax Tonnage Tax Real Estate Tax(a Pilot Scheme of Reform in Certain Regions)Related Party TransactionsRelated party transactions shall be conducted based on arms length principle,failing to which would be subject to the tax adjustments proposed by the tax authority.Tran

135、sfer Pricing DocumentationThe Peoples Republic of China Enterprise Annual Reporting Forms for Related-Party Transactions(2016 version)shall be submitted by all tax resident enterprises together with the annual CIT return.Country-by-Country Reports are also required to be disclosed.Where the related

136、party transactions of a company exceed certain threshold in a year,the transfer pricing documentations shall be prepared.The transfer pricing documentations include three-tier documentations,involving master file,local file and special issue file.Advanced Pricing Arrangement(APA)An APA is a formal a

137、greement between an enterprise and the relevant tax authorities to negotiate and agree on the transfer pricing and corresponding calculation methods to be applied for transactions between the enterprise and its related parties in accordance with the arms length principle.An APA applies to the relate

138、d partys transactions over a period of 3 to 5 consecutive years starting from the year the Notice on Tax Matters is issued signifying the acceptance of the enterprises intent for the APA.Cost Contribution Agreement(CCA)An enterprise and its affiliated parties shall jointly develop or transfer intang

139、ible assets,or jointly provide or accept labor costs.CCA may be signed between the enterprise and its affiliated parties.The cost of complying with the arms length principle is deductible before tax.The CCA does not need to be verified by the tax authority,but the enterprise shall report the CCA to

140、the State Administration of Taxation.Compliance GuidanceCompliance GuidanceDoing Business in China 2928 Doing Business in China Tax IncentiveIndustrial Tax incentiveVarious tax incentives are granted to certain specified businesses.The below summary represents some of the major tax incentives.Indust

141、ry or businessTax incentive policiesHigh-New Technology Enterprises(HNTE)A preferential income tax rate of 15%is applied to HNTE.The HNTE shall possess core proprietary intellectual properties with certain conditions met.Small-scale Enterprises with Low Profitability For the first RMB 1 million of i

142、ncome,a tax rate of 2.5%is applied from 1st January 2021 to 31st December 2022,and for the second income worth RMB 3 million,a total of 5%tax rate shall be applied for the qualified small-scale enterprises from 1st January 2022 to 31st December 2024.From 1st April 2021 to 31st December 2022,VAT smal

143、l-scale taxpayers whose monthly sales are below RMB 150,000(inclusive)are entitled to exemption from VAT.From 1st April 2022 to 31st December 2022,VAT small-scale taxpayers who are subject to 3%levy rate are exempted from VAT.Profit distribution between tax resident enterprisesQualified dividends,pr

144、ofit distributions and other returns on equity investments derived by a TRE from another TRE is exempted from CIT.Agriculture,forestry,animal husbandry,and fishing industriesIncome derived from such businesses may be entitled to CIT exemption and/or reduction.Infrastructure projectsEnvironmental pro

145、tection,energy and water savings projectsTechnology transfers Software enterprises and integrated circuit manufacturers Effective VAT rate of 3%may be enjoyed by those selling self-developed software.Unlimited deduction for employee education expenses.Two exemptions and three 50%reductions CIT polic

146、ies.10-year tax losses carry forward.Tariff exemption on equipment importation.R&D expenses175%/200%super deductionRecruiting disabled employees200%super deductionThe Manufacturing and living service industries(refers to taxpayers whose sales volume are acquired from postal,telecommunications,modern

147、 and living services)10%extra input VAT deduction for the manufacturing industry and 15%extra input VAT deduction for living service industries.Qualified enterprisesRefund of incremental uncredited input VATRegional Tax incentive The central government of China has granted various tax incentives to

148、the following specialized areas in China:Hainan Free Trade Port Lingang New Area of the China(Shanghai)Pilot Free Trade Zone Guangdong-Hong Kong-Macau Greater Bay Area Great Western Development Regions Zhongguancun(Beijing)National Innovation Demonstration Zone Khorgos and Kashgar Special Economic Z

149、ones in the Xinjiang Uygur Autonomous Region Hengqin New Area of Guangdong Province,Pingtan Comprehensive Experimental Area of Fujian Province and Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation ZoneControlled Foreign Corporation(CFC)Where an enterprise established in a low-tax countr

150、y or regions,which is controlled by a resident enterprise or a resident individual,and does not distribute or reduce the distribution of profits without reasonable operation needs,the Chinese authority bears the rights to make tax adjustments in accordance with reasonable methods.Thin Capitalization

151、The thin capitalization rule stipulates whether or not the interest payments to related parties may be deducted before tax.The standard ratio of related party debts to the total equity is:5:1 for financial business;2:1 for all other types of business.Interest payment to a related party on the portio

152、n of debt over the proscribed ratios will be disallowed for income tax deduction purposes,unless documentation can be provided to prove the arms length nature of such intercompany financing.General Anti-Avoidance Rule(GAAR)A general anti-avoidance investigation may be initiated by the tax authority

153、for a corporation on the following tax avoidance arrangements:The abuse of tax preferences The abuse of Tax Treaties The abuse of the corporation structure Using tax havens to avoid taxes Other arrangements that do not have reasonable commercial purposesInterest Surcharge on the Tax AdjustmentAny ad

154、justment to tax payment in accordance with the administrative measures for special tax payment adjustment is subject to a surcharge of contemporaneous bank lending rate plus five percent.However,the five percent can be waived if the enterprise duly submits their transfer pricing documentation or any

155、 other requested information to the tax authorities.Compliance GuidanceCompliance GuidanceDoing Business in China 3130 Doing Business in China Solutions for Foreign Investment in ChinaSolutions for Foreign Investment in ChinaWe offer all-round comprehensive services to assist foreign corporations do

156、ing business in China,from pre-investment analysis to market exist.Pre-investment study and planningCompany de-registration Holding structure Location study Legal form Business scope Level of capital investment Foreign exchange control and requirements Summary of compliance requirements on daily ope

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159、t in ChinaDoing Business in China 3332 Doing Business in China 12374865Organizational structure Determine appropriate corporate structure Tax registrations Register with tax authoritiesEmployee issues Deal with employment issues including employment contracts,employees hiring Register with social in

160、surance authorityOngoing compliance Set up finance function and systems for compliance Complete local statutory filingsName pre-approval and application Apply company name pre-approval Choose business registration location Draft application documentsCompany bank accounts Choose bank Open bank accoun

161、tsIncorporation and registration Register with various government authorities and obtain necessary licencesTax advice Obtain advice around direct and indirect taxes and transfer pricingOur history of providing tax services in China can be traced back to the year of 1985.As of today,we have more than

162、 50 tax partners and around 200 Certified Tax Agents servicing various businesses from 20 plus locations across the country.We have been rated by the comptent authority as a 5A tax practice,the highest available ranking in China for professional tax teams.This is also a fair and deserved recognition

163、 not only of our full-scaled service offerings but also of our track record of providing solutions that are tailored and feasible for different businesses.We have served a wide spectrum of industries,such as automobiles,electronics,pharmaceuticals,machinery,metal,chemicals,logistics,e-business,consu

164、mer products,real estate,food and beverages,textiles,financial services,business services and etc.Our profound industry experience,coupled with the excellent research capability of our Tax Technical Centre,enables us to deliver distinctive industry-focused solutions.Grant Thornton TaxEstablished in

165、1981,Grant Thornton is one of Chinas first and most influential accounting firms.Relying on rich international resources,years of business experience and profound professional knowledge,Grant Thornton is able to offers a full range of audit,tax,advisory,valuation and project management services to c

166、lients in every sector of the China market and committed to enhancing brand value and becoming the best business consultant with reliable and comprehensive solutions for customers.Adopting the management mode of“one firm,one China”,Grant Thornton currently has 28 strategically aligned offices,more t

167、han 300 partners and 6,000 professionals throughout the Chinese mainland and the Hong Kong SAR,including over 1,200 certified public accountants,over 200 certified tax agents,50 national leading accounting talents and 120 professionals for military industry confidential business services.Besides our

168、 headquarters in Beijing,we have offices in Chinas major economic centres including Changchun,Changsha,Chengdu,Chongqing,Dalian,Grant Thornton ChinaGrant Thornton is one of the worlds leading organisations of independent assurance,tax and advisory firms.With 62,000 people in over 130 countries and r

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170、ulation,or realising stakeholder value,we can help you chart the path ahead.Grant Thornton International LtdFuzhou,Guangzhou,Harbin,Haikou,Hangzhou,Hong Kong,Jinan,Kunming,Nanjing,Nanning,Ning Bo,Qingdao,Shanghai,Shenzhen,Taiyuan,Tianjin,Wenzhou,Wuhan,Xiamen,Xian,Zhengzhou and Zhuhai.We are continui

171、ng to grow our service network across the country.Keeping a sharp focus on quality and adhering to the principle of independence,Grant Thornton is among the first Chinese accounting firms qualified to engage in securities business,futures and financial audit work,in addition to audit work for extra-

172、large state-owned enterprises.We are also a registered public accounting firm with the U.S.Public Company Accounting Oversight Board(PCAOB),and awarded an H-Share license that enables us to sign off audits of Chinese-incorporated companies listed in Hong Kong.We serve a broad client base that encomp

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174、es and regions which enables an easy access to localized expertise for our global clients.Meanwhile,GTILs international business centres in major economic zones around the world and Global China Business Group(GCBG)in over 20 countries provides a gateway to the resources of Grant Thornton globally a

175、nd helps us better serve the Chinese clients across borders.Solutions for Foreign Investment in ChinaSolutions for Foreign Investment in ChinaFollow us on WeC Contact usDiana ZhaoInternational Tax and BPS PartnerEmail:Phone:+86(10)8566 2022 Grant Thornton China.All rights reserved.“Grant Thornton”re

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