China Regulatory Brief: Foreign-invested Projects Management in Zhejiang, Criteria for Qualified High-tech Enterprises

February 15, 2016 Posted by China Briefing Reading Time: 4 minutes

Zhejiang Government Releases Foreign-invested Projects Management Measures

On January 28, the Zhejiang provincial development and reform commission released the “Administrative Measures on the Management of Foreign-invested Projects (Zhefagaiwaizi [2016] No.38),” which took effect on January 31. According to the Measures, foreign-invested projects in Zhejiang province are subject to either approval or filing management, depending on the investment amount and industries involved.

Foreign investors may refer to the National Guidance Catalogue for Foreign Investment Industries (2015) when determining whether they should go through the pre-approval procedures with the local government before the investment is made. For example, foreign investment over US$100 million into restricted industries stipulated by the Catalogue need to be pre-approved by the provincial government. Enterprises that are subject to the approval management are required to prepare and submit an application report, the companies’ financial reports, board resolution and other relevant documents to the government. Foreign-invested projects that are subject to the filing management may complete the filing procedures online.

China Revises the Criteria for Qualified High-tech Enterprises

On January 29, the Chinese government issued the amended “Measures of the Accreditation as High-tech Enterprises (Guokefahuo [2016] No.32),” which is a loosening of the previous 2008 law. To be qualified as a high-tech company, the company needs to be registered for more than one year and its R&D staff should make up 10 percent of a company’s total staff members. Moreover, the company’s expenditure on research and development should exceed a certain percent (e.g., three percent) of its revenue. Meanwhile, at least 60 percent of the R&D expenditure should be used in mainland China. In China, qualified high-tech enterprises are entitled to a slew of tax incentives including a reduced 15 percent corporate income tax (CIT) and staff training reimbursements.

SAFE Further Liberalizes Foreign Investment in Domestic Capital Market

On February 3, China’s State Administration of Foreign Exchange (SAFE) decided to lift the quota that qualified foreign institutional investors (QFII) are allowed to invest in China’s domestic stock and bond market. Specifically, SAFE now allows QFIIs to obtain investment quotas on a case-by-case basis – previously, a standard US$150 billion quota was granted to qualified foreign investors that had obtained the permit from the China Security Regulatory Commission (CBRC). Furthermore, rather than obtaining the pre-approval from the SAFE, investment within the quota is now only required to be filed with the foreign exchange bureau. The QFII scheme was launched in 2002 to allow licensed foreign investors to invest in the RMB-denominated securities market in China.

China to Launch Individual Income Tax Reform

It is reported that China has finished drafting the individual income tax (IIT) reform plan and is likely to officially launch the reform in the second half of 2016. Experts predicted that more deductions such as children’s education costs and housing & rentals before the tax collection would be allowed after the reform. It is also expected that the tax bureau will further clarify the income items/categories and optimize the tax rate structure. China’s Ministry of Finance unveiled its plan to launch the IIT reform in early 2014. However, the IIT reform, just like many other tax reforms in China, is long delayed due to its complexity and significant influence on taxpayers.

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