Interviewed By China Business

Posted by on August 24, 2011 under Hwuason News, Individual Income Tax | Be the First to Comment

Systematic Reform Called by China Tax Law———behind 500 yuan difference

On June 30, NPC voted for the decision of amending IIT Law, raised the former determined 3000 yuan ( in second draft context) to 3500 yuan, and changed the first stage rate from 5% to 3%.

As the IIT Law is finally a closed case, yet the reform process is still open for discussion and a systematic IITtax reform is needed.

IIT act stands at the top of China popular will

The final version differs from initial drafts at some point, experts say that this might be related to the massive poll conducted by NPC. Other than 200,000 pieces of advice from the common folksy, departments of NPC also listened to persons with typical social identity from all kinds of areas, professions and ranks. Though it was stated that the popular opinion will not affect the legislative process, it was clear that the legislators have considered such opinions.

The direction: tax reform

Liu Tianyong: When systematic reform is not available in the near future, we can benefit most people earlier by single amendment, yet the long term tax reform will eventually change the differentiate treatment on income distribution.

How to implement

Liu delivered his opinion as: though a comprehensive and verified declaration system is most scientific, and can achieve the goal of fairness, reasonability and transparent, it has a risk of inconsistency with our current withholding regime. Under this situation, feasibility became a very important factor.

Interviewed by China Business on Issues of Budget Law

Posted by on under Hwuason News | Be the First to Comment

Promoting Amendment of Budget Law

45 of 98 departments of the State Council have exposed their budgeting and final settlement numbers till July 19th. After in last year, 74 departments released summary statements of the budgeting and receipts & disbursements, and budget statements of financial appropriation, this is another step to fulfill the purpose of TRANSPARENCY. Yet from the first day of publication, fees used for three types of public matters have been widely questioned.

True or false: are the numbers real?

According to the State Council, fees used for three types of public matters refer to abroad funds, vehicle acquisition and maintenance fees, and official reception fees.

Though quite simple it seems, the released numbers are quite different from department to departments. Some only give a total number of receipts and disbursements, some of them give out details, even give an explanation note.

Ministry of Finance spent a too high actual budget at 32,060,000 RMB, which occupies 4 percents of its total expenses. And the rate is the highest among all 45 departments and ministries.

As for improving the status, Ye Qing, deputy to the NPC and deputy chief of Hubei Statistical Bureau, says that, the collected numbers is not enough to reflect real expenditures of three types of public matters, as this is just numbers included in the financial appropriation, and huge receipts still exist other than from state fund.

Liu Shangxi, Chairman of the financial science research center affiliated to the Ministry and Finance, pointed out that to collect the public fees is a hard work, as there is not an account subject in name of fees for three types of public matters, all we can do is to recount the numbers from other subjects, which may cause all kinds of differences and inconsistency.

Also, says Liu Tianyong, partner of Hwuason, and Liu Shangxi, that this big step of openness needs to be understandable by common folks.

Supervision: from enhancing the system

When the role of supervisor is set, the question remains that, the responsibility of the rule breaker is still not clear. “Now our most important problem of amending the Budget Law is to reset and re-divide rights, obligations and responsibilities of the People’s Congress, government and other departments,” Says Liu Jianwen.

For what’s worth mention, the current effective Budget Law has been approved in 1994 and came into effect in 1995, the amendment has been brought up in 1997, yet is still delayed in the discussion period of Legal Affairs Office of the State Council.

But as the financial reform reach its key point and the government becomes more and more transparent and open, the amendment of Budget Law needs its final and crisis promoting.

Foreign Investment Options in China

Posted by on December 28, 2009 under Uncategorized | Be the First to Comment

A foreign investor has several options that it can use to establish a business presence in China. The option selected will vary, depending on the type of business activity, and the business plan formulated by the investor. The following are the common legal structures that can be used for foreign investment in the China:

  1. Representative Office
  2. Joint Venture (Cooperative or Equity)
  3. Wholly foreign owned enterprise
  4. Partnerships (see here http://www.chinataxblog.com/?p=86)

Representative Offices (ROs)

ROs are not separate legal entities but rather are extensions of the parent company. They are limited in the activities that they can undertake. Permitted activities include the general promotion of the parent company, market research and arranging contracts with customers of parent company. Importantly, they are not permitted to engage in direct sales activities nor sign any contracts. Employees of ROs are employed through special employment agencies. ROs are generally being phased out with the growing liberalization of China’s foreign investment laws – at one time ROs represented one of only ways that some foreign companies could enter China. One of the problems with ROs today is that they are generally taxed on a revenue basis as opposed to a profits basis. Previously, it was not difficult to obtain tax free status for ROs to avoid such a method of taxation. However, the tax authorities no longer generally provide such status for ROs.

Wholly foreign owned enterprises (WFOEs)

As the name implies, WFOEs are entities that are wholly foreign owned. There are restrictions on WFOE establishment in China and, as a result, the WFOE structure can only be used in certain business sectors. The amount of business sectors permitted to use a WFOE has grown over the past 5 years as China has implemented its WTO commitments. As WFOEs have minimum registered capital requirements. Under the Company Law of China this requirement is a mere RMB30,000. However, in practice the authorities in China have demanded significantly more capital depending upon the nature of the industry. A unique feature of China’s corporate laws is that all companies must have a prescribed business scope and are strictly only permitted to operated their business within that scope. The required registered capital is tied to the nature of the business scope. Registered capital is required to paid in within 2 years of the company first being established.

Joint Venture (JV)

The JV is the most traditional form of operating structure for foreign investment in China and, previously, was the only vehicle available to foreign investors for many years.  There are two types of JV structures: Equity Joint Ventures (“EJVs”) and Cooperative Joint Ventures (“CJVs”).  The major difference between the two structures is that partners in an EJV must pay in registered capital and derive profits directly in proportion to the equity invested, with the assets owned in proportion to equity holdings. As the industries in which WFOEs have been permitted to operate have widened, the use of JVs have decreased. There are a number of horror stories of failed JV experiences in China. However, there have also been some very successful cases. With the greater liberalization of China’s foreign investment restrictions, the relevance and need to use the JV model has lessened. Although, in the right circumstances JVs still remain an important business model for operating in China, particularly where the relevant industry is restricted by China’s legal guidelines.