Small & Medium Enterprises Focus Group Quarterly Update - Q2 2014

Published on 2014-07-03

The first half of 2014 has started with plenty of new changes to the Tax & Legal realm in China.

The first half of 2014 has started with plenty of new changes to the Tax & Legal realm in China.

The new China Company Law has had a positive impact on Foreign Invested Companies. The minimum amount of registered capital for a company establishment has been removed. There will no longer be mandatory ratios applied to the registered capital and the total investment. No timeframes are being imposed by the government authorities meaning that investors can inject capital if and when needed. As a result, capital verification reports will no longer be required for submission to authorise usage of capital. However it should be advised that there are regional variations to this new regulation and advice should be obtained from the Administration of Industry and Commerce.

With the new Double Tax Agreement between China and the UK, which entered into force on the 13th of December 2013, it goes without saying that the main beneficiaries are the UK investors. Dividends withholding tax has been reduced from 10 to 5 percent. The new DTA impacts the fact that pure “Holding Companies” may no longer be an advantage for British SMEs.

Consumer rights have been strengthened in China and it is of vital importance for UK SMEs to understand the new Consumer Protection Law, particularly if they are selling consumer products into China. Class action suits are now allowed and claims for damages of mental suffering are possible. The biggest change has occurred within the e-commerce sector whereby consumers can return products bought online within 7 days without cause, but they must pay for return freight themselves. Bigger customer service teams might be needed since complaints must now be resolved within a 7 day timeframe.

In the HR sector, companies must now take into consideration new regulations regarding Labour Dispatch. Labour Dispatch workers can only be used in the following positions: temporary, auxiliary and substitution. The number of labour dispatch workers shall not exceed 10% of the total number of employees. SMEs should also check whether the HR agency they are working with has a Labour Dispatch Operation Permit, which is now mandatory.

Foreigners will also have to face new challenges in order to comply with New Visa and Residency Rules. As of September 2013, processing time and documentation required for residence permits have increased, as well as penalties for violations.

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