China legal update: Four Departments Expand the Applicable Scope of the Preferential Tax Policy for Foreign Investors Who Reinvest Profit

China legal update: Four Departments Expand the Applicable Scope of the Preferential Tax Policy for Foreign Investors Who Reinvest Profit

I. Legal News

Four Departments Expand the Applicable Scope of the Preferential Tax Policy for Foreign Investors Who Reinvest Profit

On December 21, 2017, a Circular on Policy Issues concerning Temporarily Not Levying the Withholding Income Tax for Direct Profit Reinvestment Made by Foreign Investors was released by four departments including the Ministry of Finance. It is a preferential tax policy allowing foreign investors temporarily not be subject to withholding income tax (WIT) anymore if said foreign investors reinvest profit in China pursuant to specific tax deferral treatment criteria, and the reinvestment under preferential tax policy only applies to investment projects under certain encouraged categories.1

Recently, a new circular was issued on September 28, 2018 (“the 2018 Amendment”), in which the applicable scope of reinvestment projects was extended. Specifically, in the 2018 Amendment, the applicable scope of reinvestment projects expands from “projects under certain encouraged categories” to “all projects and fields from which foreign investments are not banned”. This reform is also in line with the newly released Negative List 2018 which replaces the previous Catalogue for the Guidance of Foreign Investment Industries (2017 edition), as one of the main changes in Negative List 2018 is that encouraged categories are totally deleted.

The 2018 Amendment will be retroactively applied from January 1st, 2018.


China Sets Up Its First Blockchain Pilot Zone in Hainan Province

On the 8th of October, Hainan Province officially launched China’s first blockchain pilot zone within an industrial park called the Hainan Resort Software Community. Hainan, an island located in southern China, was named a free trade port earlier this year. The Island has been a provincial and special economic zone for 30 years and is a very touristic destination in China.

The Blockchain, which was invented by a person known under the pseudonym of Satoshi Nakamoto, is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central authority.

The pilot is aimed at exploring the application of blockchain in areas such as cross-border trade, inclusive finance and credit rating, according to Wang Jing, head of Hainan’s department of industry and information technology. The zone will include a blockchain laboratory, which will be established by the University College Oxford Blockchain Research Center and the Hainan Resort Software Community (RSC). More than 3000 Internet companies are situated at Hainan RSC, including Tencent and Huawei. It is also home to Baidu Blockchain, 360 Blockchain, Thunder Blockchain, and so forth. Crypto exchange Huobi recently announced that it is planning to move its headquarters from Beijing to Hainan. Last year Initial Coin Offerings (ICOs) and cryptocurrency exchanges were banned in China, despite this the blockchain industry remains booming. The government is currently working on drafting a legal framework to regulate the industry. Initiatives on blockchain have been developed by local governments in several cities (Shanghai, Suzhou, Guiyang, Guangzhou, Shenzhen…) and in August 2018 the Chinese Communist Party published a handbook titled “Blockchain – A guide for officials” (区块链 – 领导干部读本).


II. Hot Topics

The Actress Fan Bingbing Reappears and the Film and TV Industry Receives a Warning

Following up on our previous newsletter and the recent turmoil in the Film and Television industry, the actress Fan Bingbing (范冰冰), who had been missing since last July, has reappeared on October 3rd.

The State Administration of Taxation (“SAT”) has charged the actress with a fine of RMB 884 million (USD 129 million) over tax evasion. Fan Bingbing issued an apology letter on her Weibo account in which she notably says that “Without the good policies of the Party and the State, without the love of the People, there would be no Fan Bingbing”. It is unclear if the actress will or not be the target of criminal charges, however the mainstream press assumes that if she manages to pay the full fine, she should be able to escape it. The notoriety of the actress and the amount of money involved make this case a strong signal sent to the Chinese film and television industry.

Concomitantly to Fan Bingbing’s letter, on the 2nd of October, the SAT published a notice on Further Maintaining the Taxation Order in the Film and Television Industry (the “Notice”). The Notice puts forward a series of actions, among which inspections, that will be taken to restore Taxation Order in the above-mentioned industries. It notably states that individuals and companies in the entertainment industry must pay any taxes owing since 2016. The tax bureau said those who paid their bills by the end of the year 2018 would be exempted from any penalties. The Notice also warns that between March and June 2019 the taxation authorities will launch targeted inspections in the film and television industry among those who refuse to take corrective actions, and seriously cope with their possible violations according to the law.

 See our article “New Preferential Tax Policy For Foreign Investors Who Reinvest Profit”


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