Key Developments in China’s New Legal Reforms

In January 2019, Chinese government has reframed its legal structure and brought in several changes. Remaining aware of the latest developments is a key issue for the foreign businesses finding for opportunities in China. The US government has urged China to change intellectual property law, end forced technology transfers from the US companies and stop cyber theft of the American trade secrets.

Washington accused Beijing of reneging on commitments to change its laws to enact economic reforms, while Beijing called U.S. President Donald Trump’s tariff’s “barbaric.” Leaders from both countries are now vowing a long fight, despite slowing domestic economies. Shi Yinhong, a prominent international relations scholar from Renmin University, said the gap between the two sides was widening as Washington demanded a strong enforcement mechanism while Beijing wanted more leeway.

In the current scenario, the US and the European companies with a business interest in China should closely follow the changes in the Chinese legal framework to ensure their business stays compliant in China.

Individual Income Tax (IIT) Reform

China’s IIT reform introduced a host of changes to the system of individual taxation in the country. In addition to the introduction of special additional deduction and the reform of the 5-year rule, it is also discussed how the taxable basis apportionment between China- and foreign-sourced income is defined.

The tax reform includes the following major changes:

  • Tax brackets and tax rates
  • Special additional deductions
  • Cumulative withholding tax method
  • New method for determining employee tax type
  • Tax income categories

China’s New E-Commerce Law

China’s comprehensive e-commerce law will bring heightened pressure on online retail companies to fight the sale of counterfeit and copycat merchandise on their platforms. Coverage of the E-commerce Law is very broad. According to Article 2, e-commerce refers to any operational activities that sell goods or provide services via information networks like the Internet. One important feature of the new law is the requirement that online businesses must register their business and acquire all necessary licenses regulating particular activities, such as the sale of therapeutic drugs.

IP Protection Regulations

Amendments to the Trademark Law come down heavily on trademark squatters and those found guilty of trademark infringement – key grievances repeatedly cited by foreign brands in China. On 23 April 2019 China passed amendments to two major IP laws -the Trademark Law and the Anti-Unfair Competition Law (AUCL). Specifically, the Trademark Law has been amended in order to tackle bad faith trademark filings without an intent to use by way of clarifying Article 4 of the law.

Key points of China’s IP protection law

  • Increasingly greater entanglement with the internet, data and competition
  • Enhances in the statutory measure of damages
  • Greater concurrence of the patent system with those extant Internationally, particularly in the medical field
  • Easier securing of preliminary and interlocutory

In order to reduce the risk of incompliance, foreign businesses operating in China should immediately comply with the new laws.

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A Complete Guideline How to Transfer Money Out of China

Getting money out of China can be quite tough. For those legitimately employed in China and paying their taxes, this will not be a problem. However, many foreign companies or individuals sometimes by design or default, fall into grey areas of Chinese law where they couldn’t manage to get their hard-earned money out of this country. While China’s attempts at capital controls are the most substantial of any in the world and a significant barrier to companies attempting to do international business in and out of China there is a valid reason for their existence.

However, there are many ways you can take money out of China and the best possible way to navigate this complex field of extracting money is to seek help from the expert China lawyers. These are the things you need to consider while taking money out of China.

  • The nature of the transaction. Real estate purchases tend to be the worst of all because Chinese citizens must
  • expressly state that they are not asking to send money out of China to purchase real estate.
  • The parties on both sides.
  • The relationship and the history between the parties.
  • The location of the parties.
  • The nationalities and even the ethnicities of the parties (especially the receiving party).

China is especially targeting so-called “asset transfers,” or purchases of foreign assets with little to no potential economic returns. Such purchases, regulators believe, are purely used to shift or launder funds abroad. Chinese citizens are allowed to convert the equivalent of only $50,000 of yuan per year to other currencies. When they travel abroad, including to Hong Kong, many of their transactions using China’s UnionPay credit and debit cards aren’t subject to the limit. It is important to keep in mind that WFOE owned by a Western company that cannot get its money out of China.

You aren’t allowed to send RMB out of China, you must buy a currency that the bank is able to sell to you and send that money out. It’s this money exchange that’s the difficult part. To convince your authorized branch to sell you an approved currency you must present the following documents-

  • Your Passport
  • Your working permit
  • A filled-out application
  • Your work contract with your company
  • A statement from your company providing your salary information
  • A statement from your company proving how much tax you’ve paid up until this point to the Chinese government.

Chen Long, a China economist at Gavekal Dragonomics, said: “China still saw net yuan outflow in recent months, although the size abated from that of late 2016, based on figures released by the foreign exchange authority. Future policies will depend on how capital flow changes over time.”

Chinese regulators introduced stricter restrictions to limit capital outflow. Some examples of such outflow controls are strict limits on the amount of money that can be transferred to overseas accounts; higher scrutiny of Chinese companies that wish to acquire assets overseas etc. Outflow control measures are introduced to ensure that capital flows are either balanced or that more capital flows into the country than leaves it.

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