The following matters are covered in this issue:
- Measures to boost foreign investment in China (Guo Fa  No. 5)
- China to regulate third-party payment businesses (Yin Ban Fa  No. 10)
- China tightens app store regulations
- Tax incentives for private education (Guo Fa  No. 81)
- Laws on arable land occupation tax
Measures to boost foreign investment in China
As highlighted in KPMG China Tax Weekly Update (Issue 2, January 2017), the State Council’s executive meeting on 28 December 2016 chaired by Premier Li Keqiang approved new guidelines to further attract foreign investment. To complement this, on January 2017, the State Council published the new policy on foreign investment (Guo FaAs highlighted in KPMG China Tax Weekly Update (Issue 2, January 2017), the State Council’s executive meeting on 28 December 2016 chaired by Premier Li Keqiang approved new guidelines to further attract foreign investment. To complement this, on January 2017, the State Council published the new policy on foreign investment (Guo Fa  No. 5) setting out 20 measures including, inter alia:  No. 5) setting out 20 measures including, inter alia:
|Further opening up of Chinese market||
|Creation of level playing field||
|Increase efforts to attract foreign investment||
China to regulate third-party payment businesses
On 13 October 2016 the State Council issued several measures to better regulate internet finance, with Guo Ban Fa  No. 21 (“Circular 21”). According to Circular 21, third-party payment businesses, and non-bank payment institutions are not allowed to seize customer prepayments*, and the prepayment accounts should be opened at the People’s Bank of China (PBOC) or qualified commercial banks with no interest. To implement this, on 13 January 2017, the PBOC issued Yin Ban Fa  No. 10. This requires that the deposit management of customer prepayments shall be carried out in a centralized way, and highlights the following:
- Starting from 17 April 2017, any payment institutions shall deposit a certain proportion of customer prepayments into a designated deposit account with an appointed bank. For the time being, no interest shall accrue on funds deposited in such account. The proportion of prepayments which must be deposited in this manner are set out as ranges: (i). online payment services: 12% - 20%; (ii). bank card acceptance business: 10% - 18%; (iii). prepaid card issuance and acceptance: 16% - 24%. Where non-bank payment institutions obtain multiple payment service permits, they shall be subject to a higher proportion for deposit for their entire customer deposits through all channels.
- The PBOC will determine the proportion of prepayments to be deposited by a payment institution on the basis of the business type and the latest classification rating of the payment institution, subject to adjustment according to needs of administration.
- The amount of customer prepayments to be deposited by a payment institution with the PBOC/banks shall be calculated on the basis of the daily average balance of such prepayments for the previous quarter, and the depository payment proportion applicable to the payment institution, subject to adjustment on a quarterly basis.
- The customer prepayments deposited by a payment institution with a commercial bank shall neither be included in the general deposit nor the base for deposit reserve.
* Customers’ prepayments refer to money balances temporarily held by the payment institutions, which do not constitute proprietary assets of the payment institutions. For example, Wechat balances and Ali pay balances are both customers’ prepayments.
China tightens app store regulations
Based on news published on the website of the Cyberspace Administration of China (CAC), the CAC recently issued a notice, applicable from 16 January 2017, under which app stores in China are required to register with the country's top cyberspace regulator. This is on the asserted basis that some apps that have been found to spread illegal information, violate user rights and/or constitute security risks, and the move is intended to curb the spread of malware and illegal information on mobile phones. The news highlights:
- App stores shall perform registration/de-registration for: (i). business operations; (ii). alternation of registered items; and (iii). service cessation.
- App stores shall submit hardcopy and softcopy materials to perform the registration/de-registration with the cyberspace regulator at the location in which its ICP (Internet Content Provider) is registered or where its ICP permit was collected.
* The full content of the notice has yet to be published. We will continue to follow this.
Tax incentives for private education
On 18 January 2017, the State Council issued Guo Fa  No. 81, setting out measures to facilitate the sound development of private education, including a series of preferential tax policies:
- Exemptions from Real Estate Tax (RET) and Urban and Township Land Use Tax (UTLUT) for enterprises running schools and kindergartens in respect of the properties and lands where the schools/kindergartens are location.
- Non-for-profit private schools may be exempted from Corporate Income Tax (CIT)
- Charitable donations made by enterprises and individuals to education, can be deducted for CIT and IIT purposes.
To complement this, authorities, such as Ministry of Education, Ministry of Human Resources and Social Security, State Administration for Industry & Commerce etc. jointly issued Implementation Rules for Classified Registration of Private Schools and Implementation Rules for Overseeing Profit-making Private Schools. These clarify the specific issues for classified registration of private schools and set-up of profit-making private schools.
Laws on arable land occupation tax
On 16 January 2017, China’s Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly publicized a draft Arable Land Occupation Tax (ALOT) Law (“the Draft”) to solicit the public comments, which are welcomed before 14 February 2017.
Compared with the existing State Council-issued rules for ALOT, the rules will be set out in statutory law issued by the National People’s Congress (NPC), with the framework of the existing tax system and tax burden remaining basically unchanged. However, in the Draft, there are still some adjustments made, relative to the existing provisions. The proposed changes are driven by economic and social developments in China, advances in tax collection, and build upon the basis of the current implementation rules for ALOT.
|Taxpayers and taxable items
* ALOT law will become the 6th tax law in China, alongside Tax Collection and Administration Law, Corporate Income Tax Law, Individual Income Tax Law, Vehicle and Vessel Tax Law and Environmental Protection Tax Law. According to the legislation plan issued by the China’s National People’s Congress (NPC) in 2015, more existing State Council regulations such as on real estate tax, VAT, resource tax, custom duty and vessel tonnage dues, will be put on a statutory basis in the near future (i.e., to turn them into laws passed by NPC).