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Welcome to JLJ's e-newsletter - China Focus.
With our latest articles, we hope to share with you insights on the
latest China regulatory updates, trends, and other news. Each month, we
bring this
e-newsletter to you as part of JLJ's value-added service.
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China's 12th Five-Year Plan: Incentives for Clean-tech Industries
 This article is the second in a series of articles covering several industry specific Five-Year Plans.
Apart
from the Renewable Energy Law and Sustainable Economy Law, China's 12th
Five-Year Plan (also "12th FYP") has put further emphasis on clean-tech
industries and highlighted seven strategic emerging industries,
including new energy, energy conservation and environmental protection,
and clean-energy vehicles.
In
the 12th FYP, Chinese central government plans to invest over RMB 3
trillion (USD 457 billion) in clean-tech industries, double the
investment during the 11th FYP. Mandatory targets are set in the 12th
FYP to cut carbon intensity (emissions/ unit of GDP) by 17% and energy
intensity (energy consumption/ unit of GDP) by 16%. Strong incentives
for developing clean-tech industries can be seen in the following
initiatives:
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Encourage development of clean technologies
- Further investment will be encouraged on hybrid and electric
vehicles, high-efficiency batteries, new environmental building
materials, new energy-efficient equipment, etc.
-
Spur technology commercialization -
Advanced and feasible laboratory technologies will gradually be
commercialized in China, e.g. membrane technology for wastewater
treatment, renewable energy, nano carbon materials, energy-saving
technologies, etc.
-
Enhance international collaborations in building clean-tech based economy -
The Chinese government has cooperated with international financial
institutions in many energy efficiency credit programs and established
preferential policies to attract foreign investment in clean
technologies.
Significant
opportunities may exist for foreign clean-tech companies considering
entry into China; however, the underdeveloped legal and regulatory
environment (although improving each year), especially in protection of
intellectual property rights, poses challenges to the potential
development.
For
companies approaching the China market, it is recommended that all
risks and benefits are understood before taking any significant action.
For inquiries about this article or other work of our consulting division, please email mark.ray@jljgroup.com .
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Export VAT Rebate (Exemption) Clarification
 The
issue of value-added tax (VAT) rebate for exported goods is often a
cause for confusion in China, and one of the top issues we help our
clients with. The rebate is often referred to as an exemption but in
reality it is often limited and may not cover the entire input VAT
cost. In addition the rebate is not automatic and involves a particular
application process with certain timing.
Currently
the export refund rates range from 0% to 17%, while input VAT is
generally 17%, but can also range from 7% to 13% depending on the type
of product. Product classification types are based on the HS product
code system and individual product refund rates are issued by the
Ministry of Finance and the State Administration of Taxation. There are
several cases where the refund rate is lower than the input VAT rate,
resulting in a VAT burden for the exporter.The refund rates are subject
to change based are market conditions and economic policies.
VAT
rebates are handled by the tax rebate department of the local tax
bureau. The rebate should be applied for within 90 days of the date the
goods are declared for export. If circumstances require additional
time, an extension may be applied for, but if the application is not
filed within a maximum of 210 days, the export sales are deemed to be
local sales for VAT purposes and the exporter will face the full VAT
burden.
In
addition, exporters should submit bills for forex receipt on exports
when they apply for VAT rebate. But if payment is not yet due, the
procedures for rebate can still continue and the bills for forex
receipt can be submitted at a later date. If the relevant bills of
forex receipt are not submitted within 210 days of the date goods are
declared to export, any rebate granted will be revoked, and if not yet
granted will be withheld.
For more information on VAT and other tax issues in China, please email georgia.zhu@jljgroup.com.
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Canceling a Job Offer: A Case Study
 Finding
the right talent and providing solid offers when you do, is important
for any company. But after an offer is made, situations can arise where
canceling that offer is needed. This can result in severe
repercussions, even if the offer was not yet replied to.
According
to the regulations of China's Labor Contract Law, formal job offers can
usually be canceled before the receiver replies, but in certain cases
the offer may not be withdrawn. Cases where offers cannot be withdrawn
include:
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If the offer guarantees a specific effective date or indicates in other ways that the offer could not be withdrawn.
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If
the offer recipient has valid reasons to consider the offer to be
irrevocable and has been preparing to enter into the employment
contract.
The
following case study, based on a real example, illustrates a case where
an offer could not be legally withdrawn, and the repercussions of doing
so.
Jack
worked for company A in Tianjin and had earned a good reputation in the
industry. Through the introduction of a headhunter, company B in
Shanghai invites him for several rounds of interviews and later invites
him to join the company.
Jack
then begins to prepare to resign from company A, which involves paying
compensation for ending his labor contract early. He also begins to
prepare for new accommodation in Shanghai to start his new job. During
this time company B provides Jack a formal offer and he accepts
immediately. The offer stipulated the title, term, compensation and the
date to begin work.
The
resignation with company A was completed and Jack reported for work at
Company B on the agreed upon date. However, he was told by the company
that they could no longer hire him due to economic reasons. As a result
Jack requested company B provide him compensation and the case was
taken to court.
Jacks
request for compensation was well founded and as per the arbitration of
the court, company B was required to compensate Jack for the cost of
health check, transportation, house rent, house agency costs, the
compensation paid to company A by Jack, as well as compensation for
Jack's unemployment.
For more information on managing HR in China, email vicky.chen@jljgroup.com.
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Foreign Invested Partnership Enterprise
 The
Foreign Invested Partnership Structure was announced last year giving
foreign entities and individuals a new way to set up operations in
China; adding to the existing forms of wholly foreign owned enterprise,
equity joint venture, and cooperative joint venture (collectively
FIEs). Although interest in FIPEs is quite high, clear understanding is
still low.
There are some similarities between FIPEs and the other FIEs, but also several differences - these are outlined below:
Business FIPEs can engage in:
Similar to WFOEs, FIPEs are limited in the type of business activities
they can perform and they must comply with the Guidance Catalogue of
Foreign Investment. They are only allowed to establish under categories
where 100% foreign ownership is allowed.
Forming a FIPE:
FIPEs may be registered by 2 or more foreign enterprises or individuals
as well as between foreign enterprise or individuals and Chinese
individuals, enterprises or other organizations. They are not allowed
to be set up with Chinese state-owned companies, listed companies,
public good institutions or social organizations as partners.
A
FIPE does not need to provide registered capital for registration
purposes and there is no timeline for mandatory contributions as
required for other FIEs. Investors in the partnership contribute
capital based on partnership agreement and may contribute cash, assets
in kind, intellectual property, land use or proprietary rights, and in
some cases labor contributions. When investing cash, freely convertible
foreign currencies may be used as well as locally sourced RMB as long
as it is proven to be legally obtained.
The
registration procedure for a FIPE is generally much shorter than other
FIEs since Ministry of Commerce approval and capital verification is
not needed. The registration takes place at the local level with the
Administration of Industry and Commerce. If all required documentation
is in order, the approval can be done within 20 days of applying. But,
if the business scope of the FIPE includes areas which need additional
approval or certification from relevant authorities, such approval must
be gained before the registration can begin.
Taxation of FIPEs:
Exact regulations in regard to taxation for FIPEs has not yet been
issued, though it can be pieced together from various circulars and
laws regarding foreign invested enterprises and general partnerships.
FIPEs
are not income tax payers; it is the partners who report and pay income
tax. In general, partners are required to pay at the enterprise income
tax level of 25%. In some cases, depending on local regulations,
partners who are natural persons will be required to pay a flat 20% tax
or at rates based on China's progressive individual income tax rates.
Currently FIPEs do not qualify for preferential tax treatment policies,
and since they are not general tax payers they cannot apply for VAT
deductions or rebates.
Use
of a FIPE structure can be viable in certain situations, but business
scope and tax implications should be carefully considered. Before
choosing any type of China investment structure, all current and future
needs should be considered.
To learn more about setting up a legal entity in China, contact us at fdi@jljgroup.com.
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