As highlighted in KPMG China Tax Weekly Update (Issue 17, May 2018), Premier Li Keqiang, at an 25 April 2018 executive meeting of the State Council, outlined seven tax reduction measures to provide greater support to innovation and small enterprises.
Following this, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT), issued additional guidance on the following three measures.
The detailed rules of the following four measures outlined by the State Council are still under development, and will be set out in future updates.
At the 10 November 2017 China-US economic cooperation meeting, China committed that it will lift the ceiling on foreign equity ownership in securities, fund management and futures companies from 49% to 51%. China will eliminate all equity ownership limits once this initial relaxation to 51% has been in place for three years (i.e., where the relaxation to 51% is in place from 2018 to 2020, the full relaxation will take effect from 2021).
To fulfill the commitment, China Securities Regulatory Commission (CSRC) has relaxed the foreign investment limitation in securities companies in April 2018, setting out Administrative Measures on Foreign-invested Securities Enterprises under CSRC Order No. 140 (see KPMG China Tax Weekly Update (Issue 18, May 2018) for details).
Going further, to deal specifically with futures companies, CSRC on 4 May 2018 issued the draft Administrative Measures on Foreign-invested Futures Companies (the “2018 draft measures) to solicit public comments. Specially, the 2018 draft measures:
The liberalization of rules on foreign investment in futures companies is in line with a keynote speech made by Chinese President Xi Jinping at the opening ceremony of the Boao Forum for Asia (BFA) Annual Conference on 10 April 2018. A “four-point plan” for the further liberalization of rules governing foreign investment in, and trade with, China was announced.
Following on President Xi’s speech, on 11 April, Mr. Yi Gang, governor of the People‘s Bank of China (“PBOC”) announced a string of opening up measures for the financial sector and a timetable for the opening up. He set out the measures that will be implemented in the coming months.
(see KPMG China Tax Weekly Update (Issue 15, April 2018) for details).
In order to intensify the regulatory oversight of related party transactions in the insurance sector, on 3 May 2018, China Insurance Regulatory Commission (CIRC) released Draft Measures on Related Party Transactions Conducted by Insurance Companies (the “2018 Draft Measures”) to solicit public comments. Once it is finalized, this will supersede the five existing rules regulating related party transactions for the insurance sector, that were issued in the period from 2007 to 2017. CIRC may use information, reported to them, on related party transactions to investigate inappropriate arrangements. However, this is separate from tax-related investigations of related party transactions (e.g. transfer pricing).
In addition to the matters detailed below, the 2018 Draft Measures set out detailed rules for the internal control, reporting and disclosure, supervision and administration of related party transactions. The CIRC may use the information generated and reported for supervision purposes. The 2018 Draft Measures are to take effect from 1 June 2018, and notable matters clarified include the following:
A news posting to the website of Ministry of Human Resources and Social Security (MOHRSS) on 10 May 2018 indicated that China has recently signed an Agreement on Social Security with Japan (“China-Japan social security agreement”).
According to the China-Japan social security agreement, where a Chinese enterprise assigns employees to work in Japan, an exemption may be obtained from payment of social security contributions in Japan, such as welfare pension, national pension (these are equivalent of the so-called “basic pension insurance” in China). These would otherwise be mandatory for the assigned employees and the Chinese enterprise. Persons eligible for the exemption include assigned employees, seafarers, aircraft crew, civil servants, members of diplomatic missions and consular posts.
The same exemption applies for Japanese companies and assigned employees in China.
China’s Social Insurance Law requires employers and their employees to contribute towards social insurance schemes, including pensions, medical, unemployment, maternity insurance and work-related injury insurance. Since 15 October 2011, expatriate employees working in China are also required to contribute. To mitigate the burden of double contributions in two countries by cross-border employees, China has been rapidly building up its network of bilateral social security agreements and has so far signed them with 10 countries, including Germany, South Korea, Denmark, Finland, Canada, Switzerland, Netherland, France, Spain and Luxembourg. These have all entered into force, except for the China-France and China-Luxembourg agreements. China is also negotiating agreements with further countries, including Belgium, Serbia and Romania.