LEGAL FLASH
I
SHANGHAI OFFICE
June 2014
INDEX
ADMINISTRATIVE MEASURES FOR THE VERIFICATION AND APPROVAL AN D
THE RECORD-FILING OF FOREIGN INVESTMENT PROJECTS
NOTICE
OF
THE
MINISTRY
OF
COMMERCE
ON
IM PROVING
THE
3
(CI T) POLICIES ON
4
MAN AGEMENT OF FOREIG N INVESTMENT EXAMINATI ON
ANNOUNCEMENT ON CORPORATE INCOME TAX
TAXABLE INCOME
CIRCULAR OF THE MINI STRY OF FINANCE AND THE STATE ADMINISTRATI ON
OF TAXATI ON ON SIMPLIFYING AND CONSOLIDATI NG POLICIES ON VALUE
ADDED TAX RATES
2
5
Administrative Measures for the Verification and Approval and the Record-filing of
Foreign Investment Projects (“Measures”) (外商投资项目核准和备案管理办法), issued by
the National Development and Reform Commission (“NDRC”)
The Measures are enacted in accordance with the Catalogue of Investment
Projects Subject to Government Verification and Approval (2013 Version)
(“Catalogue”) (see our newsletter of January 2014), which overrules the 2004
version.
The Measures reform the approval procedures of foreign investment projects,
including Sino-foreign equity joint ventures, Sino-foreign cooperative joint
ventures,
wholly
foreign-owned
enterprises,
foreign-invested
partnerships,
mergers and acquisitions ("M&A") of domestic enterprises by foreign investors,
capital increase and reinvestment projects of foreign-invested enterprises.
The main highlights of the Measures are as follows:

They rule two regimes to manage foreign investment projects: the approval
regime and the record-filing regime. Unless a project is required to seek
approval from the competent authorities under the Catalogue, it shall only
go
through
record-filing
procedures
with
the
competent
investment
departments.

The power of approval of most projects is delegated from the National and
Democratic Reform Commission (“NDRC”) to the local government. The
approval regime is as follows under the Measures:
-
Approval by the NDRC at State level: encouraged projects listed in the
Catalogue of Industries for Guiding Foreign Investment (“Guiding Catalogue”)
that must be controlled by Chinese investors and with an investment amount
over USD 300 million, as well as restricted projects (except for real estate) with
an investment amount over USD 50 million.
-
Approval by the provincial government: restricted projects listed in the Guiding
Catalogue with an investment amount under USD 50 million (capital increase
included), as well as any real estate projects.
-
Approval by the local government: encouraged projects under the Guiding
Catalogue that must be controlled by Chinese investors and with an investment
amount under USD 300 million.

This regime refers to either new projects or the increase of investment in
already existing projects, and the control must be understood as actual
control despite a minority shareholding.
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
To identify the competent approval authority, if the project consists of the
increase of investment in an already existing project, it shall be considered
the amount of the increase. For M&A projects, it shall be considered the
amount of the transaction.

Foreign investment projects that may impact on the national security will be
subject to security reviews, in accordance with relevant regulations.
Date of issue: May 17, 2014; Date of effectiveness: June 17, 2014.
Notice of the Ministry of Commerce on Improving the Management of Foreign
Investment Examination (“Notice”) (商务部关于改进外资审核管理工作的通知), issued by
the Ministry of Commerce (“MOFCOM”)
Since the new Company Law took effect on March 1, 2014, companies, except
those in special sectors, are relieved from many restrictions, including minimum
registered capital, ratio of capital contribution by cash, and statutory deadline of
capital contribution. These reforms have been partially implemented for foreigninvested enterprises (“FIE”) through several amendments to existing regulations
(see our legal flash of February 2014). However, the Notice introduces for the
first time the new policies in a comprehensive way for FIEs, the main points
being as follows:

It removes the provision on the percentage of initial capital contribution,
percentage of capital contribution in monetary form and contribution term.

It follows the principle, as specified in the new Company Law, that the
subscribed
capital,
the
capital
contribution
method
and
the
capital
contribution timeframe must be described by the shareholders of the FIE in
the joint venture contract, in case of applicable, and the FIE’s articles of
association.

It removes the restriction on the minimum registered capital of FIEs, except
as required by law, administrative regulations and the State Council’s
decisions for specific industries. For FIE-related matters approved before
March 1, 2014, shareholders will continue to perform their obligations
according to the original contracts and articles of association.

It confirms that FIEs must comply with the ratio of registered capital to total
investment,
as
specified
under
the
Interim
Provisions
of
the
State
Administration for Industry and Commerce on the Ratio of the Registered
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Capital to the Total Investment of a Sino-Foreign Equity Joint Venture
Enterprise and other relevant regulations.

It requires that the FIE specifies in the Capital Contribution Certificate (to
be issued
to the shareholders
after
each
capital
disbursement) the
company’s name, date of establishment, registered capital, shareholders'
name, disbursement method (in kind or in cash), amount of disbursed
capital (or cooperation conditions in the case of contractual joint ventures),
capital disbursement date, serial number of the Certificate and its date of
issuance.

Under the Notice, within 30 days of issuance of the Capital Contribution
Certificate, FIEs must send to the corresponding commerce department a
copy affixed with the official corporate stamp, along with documents
verifying
the
capital
disbursement.
According
to
the
Notice,
this
communication is for statistical purposes only.
Date of issue: June 17, 2014; Date of effectiveness: June 17, 2014.
Announcement on Enterprise Income Tax (“EIT”) Policies on Taxable Income (the
“Announcement”) (关于企业所得税应纳税所得额若干问题的公告), issued by the State
Administration of Taxation (“SAT”)
This Announcement of May 23, 2014, clarifies the following matters related to
the taxable income EIT:
TRANSFERS OF ASSETS FROM SHAREHOLDERS TO THE SUBSIDIARY

The assets that a subsidiary receives as equity contribution do not trigger a
taxable income in the hands of the recipient, contrary to the recipient of
assets for no consideration, in which case the taxable income for the
subsidiary is the fair market value of the assets.
DEPRECIATION OF FIXED ASSETS

When
the
accounting
depreciation
period
is
shorter
than
the
tax
depreciation period, the difference between the accounting and the tax
depreciations must be added to the taxable base. When assets have been
fully depreciated under accounting rules, the tax depreciation is deductible
for EIT purposes.
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
The tax depreciation rate must be the same as the accounting rate w hen the
accounting depreciation period is longer than the minimum tax depreciation
period, except for fixed assets eligible for accelerated tax depreciation.

Provisions for accounting impairment of fixed assets are not be deductible
for EIT purposes, and the tax depreciation of those assets is calculated
according to their tax basis.
Date of issue: May 23, 2014. Date of effectiveness: May 23, 2014.
Circular of the Ministry of Finance and the State Administration of Taxation on
Simplifying and Consolidating Policies on Value Added Tax Rates (“Cai Shui [2014]
No.57”) (财政部、国家税务总局关于简并增值税征收率政策的通知)
Under the old regime, the supply of special goods could be entitled to reduced
rates of 6%, 5%, 4% or 3%, provided that the taxpayer is under the simplified
VAT method, which in turn implies that it cannot deduct the input VAT.
From July 1, 2014, the special VAT rates are all reduced to 3%. The Ministry of
Finance and the State Administration of Taxation will probably soon issue the
notice implementing this decision.
Date of issue: June 13, 2014. Date of effectiveness: July 1, 2014.
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CONTACT
Omar Puertas
Cuatrecasas, Gonçalves Pereira
Partner at Cuatrecasas, Gonçalves Pereira
Shanghai office
[email protected]
27 F Shanghai Central Plaza,
381 Huai Hai Middle Road
Shanghai 200020, P.R.C.
+86 21 2327 7000
+86 21 2327 7007
[email protected]
© 2014 CUATRECASAS, GONÇALVES PEREIRA. All rights reserved.
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