China Regulatory Brief: VAT Reform Expanded to Financial Sector, Shanghai New Foreign Residence Permit Rules

August 3, 2015 Posted by China Briefing Reading Time: 4 minutes

China’s VAT Reform Expanded to Financial Industries

China’s ongoing tax reform to replace business taxes with value-added tax (VAT) is set to expand to the financial sector. Though no detailed plan has yet been released, a six percent tax rate is determined to be imposed on the financial industry. Meanwhile, according to the draft legislation, an 11 percent tax may be levied on property and construction companies, while a six percent rate may apply to the consumer service industries. China’s VAT reform, which started in 2012 as a trial program, is expected to cover three crucial sectors this year – real estate, finance and consumer services, according to China’s Minister of Finance, Lou Jiwei. More details on the VAT reform and its current status can be found in our previous article.

Shanghai Releases New Foreign Residence Permit Rules

On July 28, the Shanghai Municipal Government released the “Administrative Measures of Shanghai on Residence Permits for Foreign Talents (Hu Fu Ban [2015] No.32),” which entered into force on July 1 and will last until June 30, 2020. According to the Measures, the maximum validity of a foreign residence permit in Shanghai will be extended to 10 years from the previous five years. The Shanghai Human Resources and Social Security Bureau will issue the residence permit and determine the valid period based on the applicant’s age, work experience, education background and other factors. Earlier last month, Shanghai significantly relaxed requirements for foreign workers to apply for permanent residency, which is expected to attract and retain foreign talent in the city.

China Releases Regulations on Foreign-invested Tobacco Production Enterprises

China’s State Tobacco Monopoly Administration has recently released the “Measures for Administration of Foreign-invested Tobacco Monopoly and Production Enterprises,” which took effect on July 15. The Measures stipulate that foreign investors seeking to establish a tobacco production/processing company need to submit the following documents to the State Tobacco Monopoly Administration:

Application form (including applicant’s name, company address, business scope, registered capital and shareholder structure etc.,)
Notice of pre-approval of company’s name
Feasibility research report
Article of incorporation of foreign invested enterprise
ID certifying document and credit standing certifying document
Resolution of the Board of Directors or Shareholders’ Meeting (if available)

All the documents need to be written in Chinese. The State Tobacco Monopoly Administration is charged with issuing a decision within 20 business days of accepting an application. Investors should note that foreign investment in the sale of tobacco in China is still prohibited.

China Reduces Employer’s Social Insurance Contribution Rate

China’s Human Resources and Social Security Bureau (HRSS) and the Ministry of Finance (MOF) have jointly announced the decision to reduce the employer’s social insurance contribution rate starting October 1, 2015. Specifically, the employer’s contribution to employees’ maternity insurance will be reduced to less than 0.5 percent of the employees’ gross salary. Further, the contribution rate of occupational injury insurance is categorized into eight levels ranging from 0.2 percent to 1.9 percent of employees’ gross salary, based on different types of industries and companies. In China, both the employer and employees contribute to social welfare, but at different percentages. The amount of contribution in each social insurance category is calculated by utilizing the employee’s payment base figure and multiplying it by different percentages, as stipulated by the local government.

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