CHINA LAW DIGEST NEWSLETTER
Vol. 2, No.2 - February 20, 2003
New Fashion Seen in Chinese Courts |
TOPICS THIS ISSUE:
- Circular on Tax Return of Export Products that are Regarded as Self-Made Products
- Circular on Tax Issues Concerning Foreign Invested Enterprises and Foreign Companies Engaging in Disposition of Financial Assets
- Provisions on the Administration of Reporting Large-amount And Suspicious Payment Transactions in RMB
- Provisions on the Administration of Reporting Large-amount And Suspicious Payment Transactions in Foreign Exchange
- Interim Rules on the Administration of External Debts
Circular on Tax Return of Export Products that are Regarded as Self-Made Products
Issuing Date: December 17, 2003
Issuing Authority: State Tax Administration
Effective Date: As of the issuing date.
In a circular in the year 2000, the State Tax Administration (STA) provided that four categories of products purchased by manufacturing companies can be regarded as self-manufactured products and may therefore enjoy export tax returns. Since then, however, the local tax bureaus have implemented such tax returns based on a different understanding of the circular, which has generated uncertainty to the manufacturing companies. This Circular's aim is to unify the standards regarding which purchased products can be regarded as self-made products.
Products purchased by manufacturing companies may be classified as self-manufactured and may enjoy export tax returns provided that: 1) The purchased products have the same name and function as the actual self-made products; 2) The purchased products use the registered trademark of the manufacturing company or the trademark licensed by a foreign company; and 3) The purchased products are exported to those foreign companies who are importers of the actual self-manufactured products.
Should the purchased products form a complete set with the actual self-made products and be exported to foreign companies, who are importers of the actual self-made products, they can be regarded as self-manufactured products and enjoy export tax return provided that: 1) The purchased products are tools, components or parts for the repairing of self-manufactured products; or 2) The purchased products can directly form a complete set with the self-made products after exportation, without needing to be processed by the manufacturing company.
Commission processing products can also be regarded as self-made products and may enjoy export tax returns provided that: 1) The products have the same product name and function as the actual self-manufactured products; 2) The products are exported to the foreign companies who are importers of the actual self-made products; 3) The consigner implements the financial and accounting systems of manufacturing companies; and 4) the consigner and consignee shall enter into commission processing contract.
In addition, a company that is a member of group can also enjoy export tax returns when purchasing products from other members of that group.
Circular on Tax Issues Concerning Foreign Invested Enterprises and Foreign Companies Engaging in Disposition of Financial Assets
Issuing Date: January 7, 2003
Issuing Authority: State Tax Administration
Effective Date: As of the issuing date.
Foreign invested enterprises (FIEs) and foreign companies who engage in disposition of financial assets shall be subject to value added tax, business tax and enterprises income tax according to tax laws and regulations. Disposition of financial assets refers to acquisition of equity rights, credits, in-kind assets or compounded assets (collectively called "Replacement Assets") of other companies located in China, by FIEs and foreign companies from domestic financial assets management companies. It also refers to disposition of the Replacement Assets by way of assignment, exchange or sales.
Business tax shall apply to income generated from disposition of real property, and value added tax shall apply to disposition of goods. When disposing of Replacement Assets, FIEs and foreign companies may be exempted from certain tax liabilities, such as business tax, provided that the Replacement Assets are credits or the income is generated from the disposition of shares.
Income generated from disposition of Reset Assets shall be subject to enterprise income tax after deducted cost, expenses and losses.
Provisions on the Administration of Reporting Large-amount And Suspicious Payment Transactions in RMB
Issuing Date: January 3, 2003
Issuing Authority: People's Bank of China (PBOC)
Effective Date: March 1, 2003
The Provisions were issued in order to prevent money laundering by means of bank payments and settlements. The PBOC and its local branches shall be responsible for the supervision and administration of the reporting of payment transactions. The PBOC will establish a payment transaction surveillance system to oversee the payment transactions. The operational divisions of financial institutions shall set up anti money laundering positions, establish the rules of responsibility of such positions and designate specific personnel to be in charge of the recording, analyzing and reporting of any large-amount and suspicious payment transactions.
The following transactions shall qualify as large-amount payment transactions: 1) Single bank account transfers by legal persons, other organizations and individual businesses (hereinafter as entities) exceeding the amount of RMB 1,000,000; 2) Single cash accumulation and payment exceeding the amount of RMB 200,000, by means of cash deposit, cash withdrawal, cash remittance, cash draft, cash check release; or 3) Fund transfers exceeding RMB 200,000 between individual bank settlement accounts, or between individual bank settlement accounts and entity bank settlement accounts.
Suspicious payment transactions include but are not limited to: 1. Disparate transfers-in and concentrated transfers-out, or concentrated transfers-in and disparate transfers-out of funds within a short period of time. 2. The frequency and amounts of fund transactions are significantly inconsistent with the business volume of the enterprise. 3. The origin and destination of fund flow is significantly inconsistent with the business scope of the enterprise. 4. The daily receiving and paying of funds is significantly inconsistent with the business characteristics. 5. The flow patterns of the receiving and payment of large-amount funds are significantly inconsistent with the nature and characteristics of the business.
Provisions on the Administration of Reporting Large-amount And Suspicious Payment Transactions in Foreign Exchange
Issuing Date: January 3, 2003
Issuing Authority: People's Bank of China (PBOC)
Effective Date: March 1, 2003
The Provisions require all financial institutions engaging in foreign exchange business to report to the state foreign exchange authorities concerning large-amount and suspicious payment transactions in foreign exchange. The State Administration of Foreign Exchange (SAFE) shall be responsible for the supervision and administration of the reporting of such payment transactions.
Under the Provisions, financial institutions shall submit a monthly written report on large-amount and suspicious payment transactions. The following transactions shall qualify as large-amount payment transactions: 1. Single or accumulated foreign exchange, intra-day deposits, withdrawals, settlements or sales exceeding the equivalent of US$ 10,000. 2. Single or accumulated payment transactions exceeding the equivalent of US$ 100,000 for individuals or US$ 500,000 for enterprises, by means of bank transfer, negotiable instruments, bank card, telephone card or on-line banking.
The Provisions also list 11 types of transactions that are regarded as suspicious foreign exchange cash transactions, and 20 types of suspicious foreign exchange non-cash transactions. Among such suspicious foreign exchange transactions, FIEs are targeted for 4 types of transactions: 1) The remitted profits of FIEs are mostly converted from RMB in cash or by bank transfer from other units; 2) The FIE invests in cash in a foreign currency; 3) The remitted profits of the FIE exceeds dramatically their original capital contribution or is obviously not matching their business operation; or 4) The FIE remits its capital investment overseas immediately after it is received, and it does not match their business operation.
Interim Rules on the Administration of External Debts
Issuing Date: January 8, 2003
Issuing Authority: State Development and Planning Commission, Ministry of Finance and State Administration of Foreign Exchange
Effective Date: March 1, 2003
The Interim Rules are the first national rules regulating the administration of foreign debts from an integrated point of view. Although China has carried out tight control over external debts, all the laws and regulations issued previously deal with certain types or aspects of foreign debts only. The integrated rules have the advantage of regulating several different types of external debts. It provides provisions on definitions and classifications of external debts, external securities interests, utilization of external debts capital, repayment of external debts, risk management and supervision of external debts.
Under the Interim Rules, the term "external debts" refers to liabilities denominated in foreign currencies that domestic institutions bear to entities that are not resident in China. External debts denominated in RMB are not regulated by the Interim Rules. The Interim Rules classify external debts into three types: foreign government loans, international financial organization loans and international commercial loans. The former two types of loans shall be borrowed directly by the Chinese government only and can be re-lent to end-users. The international commercial loans are administrated according to the nature of the borrowers, who are classified as state and commercial banks, domestic enterprises, FIEs and foreign invested financial institutions.
Furthermore, as long as an external loan or the granting of external securities interest constitute an external repayment liability or potential external repayment liability, it shall be governed by the Interim Rules even if there is no loan agreement or pledge contract.
The provision on external debts of FIEs should be noted. It stipulates that the sum of mid to long term external debts and the balance of short-term external debts of FIEs shall be limited to the balance between the total investment and the registered capital of the FIE. Within the balance, FIEs may make borrowings at their discretion. If the external borrowings exceed the balance, the total investment of the FIE shall be reviewed by the original approval authorities.
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The China Law Digest News is intended to be used for news purposes only. It should not be taken as comprehensive legal advice, and Lehman, Lee & Xu will not be held responsible for any such reliance on its contents.
