In 2019, China implemented and will implement many significant legislative amendments and new laws, regulations, and policies. Your business must consider these changes, ranging from tax reform to international tariff agreements, to avoid unnecessary issues. Most of these changes were announced in 2018 and are progressively implemented in phases, however, they came into effect this year. To Ensure your business compliance in 2019, this article aims to point out the most crucial matters to prepare for.
China’s Individual Income Reform (IIT) 2019
China’s new individual income (IIT) tax reform is a fundamental change, despite its amendments through the years, its core principles were established nearly 40 years ago. At that time, the population had limited income and the most relied on salary for income. However, over the decades China has experienced rapid economic growth and nowadays people have a much more diversified income. Furthermore, as China matures, so does its administrative system and its enforcement, the reform regarding IIT reflects this development.
This amendment aims to lighten the burden for low to mid-income earners while taking a tougher stance on high-income individuals. The new reform came into force on January 1st 2019. The main areas of changes are listed below:
- Introduced itemized deductions
- Changed tax filing timelines
- Combination of classified and comprehensive tax filing system
- The new anti-avoidance rule, tax clearance guidance
Employment incentives in China 2019
The ongoing USA-China trade war brought perturbance to China’s economy and the job market. In order to keep social and economic stability, the Chinese government prioritized actions that will encourage employment while negotiations with the USA continues.
Currently, the total unemployment insurance rate in Mainland China involves employer and employee contributions. Therefore, depending on the region, employer’s usual contribution is approximatively 0.5-0.7 % of a gross employee’s salary and employee contribute approximatively 0.3-0.5 %
In the face on these challenges, Several Opinions of the State Council on Working Effectively on Promoting Employment in the Current and Future Time Periods were released in November became effective on January 1st, 2019. An important point of this document is 50% of employer’s contribution to unemployment insurance that may be refunded for enterprises that do not lay off employees or keep termination to a small scale.
For companies facing temporary operational setbacks during 2019 but refraining from laying off their employees, the refund may be based the local monthly per capital unemployment insurance premium and the number of employees joining the social insurance scheme in the preceding 6 months; such calculation method may be higher than the above-mentioned 50%.
Change in social insurance collection
On January 1st, 2019 employers in China must review their social insurance procedure to prepare for the coming change. In accordance with the release of the Reform Plan on National and Local Taxation Collection and Management System (“Taxation Collection Reform Plan”). China’s social insurance contributions will be exclusively levied by China’s tax bureau, instead of the HR bureau. China tax bureau will oversee calculating, collecting, and checking the enterprise’s social insurance contributions. The new shift aims to increase efficiency and unify tax collection, as well as, a management system to improve China’s capacity to fulfill its social insurance regulations, including cracking down on tax evasion and underpayment.
Business Trip in China: Visa Exemption in 2019
Beginning on January 1, 2019, foreign travelers transiting across China have several options for transit visa exemptions. Even though requirements for each transit visa exemption vary, each transit visa exemption provides that foreign travelers are only traveling through China between two different countries. The three transit visa exemptions allow eligible foreign travelers a visa-free visit for:
- 24 hours transit visa exemption
- 72 hours transit visa exemption
- 144 hours transit visa exemption
Nevertheless, to procure a transit visa exemption, travelers should review eligibility requirements and confirm it with their local Chinese embassy. After confirmation, travelers should communicate their intention to obtain a transit visa exemption to their airline before traveling. The airline will contact border control officials, who empower transit visa exemptions to travelers that match requirements after validation.
Most of the cases, the transit visa exemption only enables the traveler to visit the province of destination. Nevertheless, travelers getting into China via Beijing, Tianjin, Shijiazhuang, and Qinhuangdao can travel within the Beijing-Tianjin-Hebei region. On the other hand, travelers entering via Nanjing, Hangzhou, and Shanghai can travel within Shanghai, Jiangsu province, and Zhejiang province. Additionally, the 144-hour visa-free exemption policy also now be implemented in Xiamen, Qingdao, Wuhan, Chengdu, and Kunming.
New e-Commerce law and cross-border regulations in China
China’s booming e-commerce market has triggered a huge concern to be regulated. The e-Commerce Law of the People’s Republic of China effective from January 1st, 2019 improves legal protection for consumers and brand owners. These changes ensure truthfulness for industry investors aiming to exponentially expand e-commerce in China. The changes key points introduced in the law are listed below:
- Establish three types of e-commerce operators: natural person, legal person, unincorporated association
- The inclusion of non-conventional shopping channels (social media platforms such as WeChat) as e-commerce marketplaces.
Cross-border e-commerce operators will be affected by e-commerce law as well. Besides that, they need to comply with the other laws and regulations on the import and export supervision and management regarding their goods and industries.
Updated IP protection regulations in China
Plenty of IP-related policies were implemented over the past year. Intellectual property (IP) is a critical concern for companies with business activities in mainland China. IP protection is one of the main pre-established considerations when you set up a company in China. Among them is the setting up of a new national-level court under the Supreme People’s Court (SPC), which manage IP appeals across the country from January 1st of 2019. The court handles IP disputes in the high-tech industry, including cases related to trademarks patents, and trade secrets. According to the Ministry of Finance and National Intellectual Property Administration. Beginning January 1st of 2019, all the accounting companies or departments should be aware that an enterprise must disclose in detail:
- The accounting information of its IP assets
- Intangible assets
- Patent rights
- Trademarks rights
In addition, new regulations announced to solve some critical situations during IP litigation, accounting to which enterprises can request timely conservatory measures
Tariff reductions under China-Australia FTA in 2019
The bilateral free trade agreement keeps improving between these countries. In 2019, China and Australia will launch their fifth round of tariff cuts since 2015. According to the last statement of Ministry of Trade, Tourism and Investment of Australia at the 2018 China’s International Import Export (CIIE), likely some Chinese goods entering Australia will be exempted from customs duties, in counterpart, China also will cancel tariffs on a range of Australian products
Non-tariffs on Hong Kong goods
Under which an agreement released by the Ministry of Commerce, Hong Kong-origin goods imported into mainland China fully enjoy zero tariffs by means of the improved arrangement for rules of origin. On the other hand, to the already existing product-specific rules of origin, a common rule was presented based on the calculation of the value added to the products in Hong Kong. This initiative was promoted by Guangdong-Hong Kong-Macau Greater Bay Area to ease trading activities among these countries.
In addition, as of December 31, 2018, current work permits for Hong Kong residents will no longer be valid. By ceasing to require an employment permit, living, working, and studying in mainland China is easier than before for Hong Kong residents.
How Should You Prepare to these Changes?
Some of these laws and regulations coming into force this year will most likely affect a large number of China-based businesses. Although, these changes will also represent a large range of opportunities for companies planning to do business in China in the upcoming year.
In order to mitigate risks, companies should promptly prepare and immediately comply with China’s new laws and regulations. Therefore, one of the best solutions is keeping an open contact with local specialists. FDI China is a local firm specialized in foreign direct investment in China which can help your business stay updated and compliant with new policy implementations.
The information contained in this article is valid on January 15th, 2019. For updated information, please contact us via email at [email protected].