Forms for Business Establishment in the Mainland
The main categories of business for foreign investors in the Mainland are set out in the following paragraphs. Hong Kong investors shall follow the arrangements as for foreign investors.
Representative Office (RO)
RO can engage in non-profit generating activities that are related to the business of its foreign parent enterprise and business-related liaison activities. ROs cannot operate business directly and they do not have legal person status.
To set up a RO in Guangdong, application could be made to the market regulation authority. A Business Registration Certificate and a Representative Certificate will be issued after the application has been approved. The RO should then proceed with registration procedure.
Individual Sole Proprietorship
One of the preferential treatments under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) states that Hong Kong permanent residents with Chinese nationality may, in line with relevant laws, regulations or administrative rules of the Mainland, establish sole proprietorship in any provinces, municipalities, or autonomous regions in the Mainland without being subject to foreign investment approval process. There is no limit on the number of employees, or the size of its business space. The permissible business scope of sole proprietorship of Hong Kong residents covers retail, restaurants, computer services, advertising, clinic, economic and trade consulting, and management consulting services, etc.
For more information, please refer to the website of the Guangdong Administration for Market Regulation (Chinese version only):http://amr.gd.gov.cn/
Foreign Invested Enterprises (FIE)
On 15 March 2019, the Second Session of the Thirteenth National People's Congress passed the Foreign Investment Law of the People's Republic of China (hereinafter referred to as "the Foreign Investment Law"). The Foreign Investment Law came into effect on 1 January 2020. Meanwhile, the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures, the Law of the People's Republic of China on Foreign-funded Enterprises, and the Law of the People's Republic of China on Chinese-Foreign Contractual Joint Ventures were repealed. According to the Foreign Investment Law, a foreign invested enterprise refers to an enterprise that is wholly or partly invested by a foreign investor and registered within the territory in accordance with the mainland laws. The types of enterprises that foreign investors can incorporate in the Mainland are mainly foreign-invested limited liability company, foreign-invested joint stock company, Hong Kong, Macao, and Taiwan limited liability company, and Hong Kong, Macao and Taiwan joint stock company.
For foreign invested enterprises established before the implementation of the Foreign Investment Law (such as Chinese-foreign joint venture, Chinese-foreign cooperative enterprise, wholly foreign-owned enterprise, foreign-invested partnership enterprise, hereinafter referred to as "existing foreign invested enterprises"), within 5 years after the implementation of the Foreign Investment Law, the organisational form and structure can be adjusted in accordance with the Company Law of the People’s Republic of China, the Partnership Enterprise Law of the People's Republic of China, and other laws, and the change of registration can be processed in accordance with the law, or the original organisational form and structure can be kept unchanged.
Starting from 1 January 2025, for the existing foreign invested enterprises that have neither adjusted their organisational form or structure, etc. nor applied for change of registration, the market regulation authorities will not process their applications for other registration matters, and will disclose the relevant circumstances.
Meanwhile, after the adjustment of the existing foreign invested enterprises’ organisational form and structure, the original joint venture or cooperative partners can continue the equity transfer method, income distribution method, and residual property distribution method as agreed in the contract.
For more information about the Foreign Investment Law, please refer to the website of the Mainland Government:
https://en.ndrc.gov.cn/policies/202105/t20210527_1281403.html
Pre-approval for Setting up Foreign-Invested Projects
The Mainland implements the market access negative list system for foreign investments. The Foreign Investment Law of the People's Republic of China, which came into effect on 1 January 2020, stipulates that foreign investment shall be subject to a system of pre-establishment national treatment plus negative list management. The pre-establishment national treatment refers to the treatment given to foreign investors and their investments no worse than that for domestic investors and their investments during the investment admittance stage; and the negative list refers to special administrative measures for foreign investment accessing to specific sectors. The Mainland grants national treatment to foreign investments which outside the negative list. For Hong Kong, Macao and Taiwan investments, provisions are similar to that of the Foreign Investment Law.
The Special Administrative Measures (Negative List) for the Access of Foreign Investment (2021) came into effect on 1 January 2022, the items restricted to foreign investors have been reduced from 33 in 2020 to 31 in 2021. Meanwhile, the Special Administrative Measures (Negative List) for the Access of Foreign Investment (2020) shall be abolished.
The Special Administrative Measures (Negative List) for the Access of Foreign Investment in Pilot Free Trade Zones (2021) came into effect on 1 January 2022, the items restricted to foreign investors have been reduced from 30 in 2020 to 27 in 2021. Meanwhile, the Special Administrative Measures (Negative List) for the Access of Foreign Investment in Pilot Free Trade Zones (2020) shall be abolished.
For the complete list, please refer to the following Mainland government websites:
Setting up FIE: General Approval Process
According to the Foreign Investment Law, effective from 1 January 2020, “one-stop services” for the business recordation of formation and industrial and commercial registration of foreign-funded enterprises shall no longer be provided. When applying for the formation or modification registration of a foreign-funded enterprise, an applicant shall complete the initial report and modification report of foreign investment. The submission of a foreign investment information report is not an essential requirement for the registration of a foreign-funded enterprise. The registration authority shall no longer conduct a review of any foreign investment information report. An applicant may continue to complete the foreign investment information report after filing an application for business registration. Foreign investors or foreign-funded enterprises should submit annual reports “integrating multiple reports into one” through the national enterprise credit information publicity system.
When applying for registration of a foreign-invested enterprise, an applicant shall have the subject qualification certificate or identity certificate of the foreign investor notarized by the notary agencies of its home country and certified by the Chinese embassy (consulate) in that country before submitting to the registration authority.
The subject qualification certificate or identity certificate of investors from the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan shall be notarized by local notary agencies in accordance with special provisions or agreements. The identity certificate of natural person investors in the Hong Kong Special Administrative Region and the Macao Special Administrative Region refers to local permanent resident identity cards, passports, residence permits for Hong Kong and Macao residents issued by the Mainland’s public security department, and Mainland travel permits issued by the Mainland’s entry-exit administration authorities; residence permits for Hong Kong and Macao residents and Mainland travel permits do not need to be notarized.
Generally, after obtaining approval from the in-charge market regulation authorities, FIEs could obtain business license, arrange for injection of registered capital, engrave company seals with public security bureaus, open bank accounts and perform relevant registrations with relevant government authorities, including tax bureau, foreign exchange administration authority, customs, and other related government authorities. From 1 October 2015, newly established enterprises are no longer required to perform registration with tax, statistical or finance bureaus, or obtain tax registration, organisation code, financial registration certificates after obtaining business licenses with unified social credit code issued by administrative authorities for industry and commerce. For details of foreign-invested enterprise registration and incorporation procedures, please refer to the following Mainland government websites.
For certain industries, foreign investors should apply for certificates/licenses as required by relevant authorities before applying for foreign investment approval with the commerce authority.
Please note that the above general introduction of FIE set-up procedure in Guangdong is for reference only, and should not substitute legal or professional advice. For more information and advice on local practice, investors could visit the website of the Department of Commerce of Guangdong Province: https://qykb.gdzwfw.gov.cn/qcdzhdj/, or seek advice from qualified law firms or other professional consulting agencies. Normally, professional consulting agencies could provide services on FIE set-up, which may cover the drafting of Articles of Association, submission of application documents for FIE establishment, negotiation with local government authorities, etc.
Requirements on registered capital of FIEs
Total investment of a FIE refers to the total amount of funds required to run the company, i.e. the total amount of capital for infrastructure construction and working capital that is commensurate with the FIE's production scale. Registered capital of a FIE refers to the total amount of capital registered with the market regulation authorities for the purpose of establishing the FIE, i.e. the total amount of capital subscribed to by foreign investors. Investors are liable for FIE's debts by their capital contribution. According to the Notice on Issuing the Scheme for the Registration System Reform of Registered Capital issued by the State Council on 7 February 2014, the registration condition for registered capital has been relaxed unless otherwise stipulated in laws, administrative regulations and decisions of the State Council on the minimum amounts of registered capital in particular industries.
For details of the Notice on Issuing the Scheme for the Registration System Reform of Registered Capital, please refer to the website of the Mainland Government (Chinese version only):
http://www.gov.cn/zwgk/2014-02/18/content_2611545.htm
The commerce authority has the discretion to determine whether to approve the establishment of a FIE having regard to the registered capital of the FIE and its operation scale. For specific requirements for total investment amount and registered capital of a FIE, investors can seek advice from qualified law firms or professional consulting agencies or communicate with the local in-charge commerce authority and market regulation authority.
Requirements on Leasing Operating Premises
In leasing operating premises, investors should pay attention to the following issues:
For more information, please refer to the website of the Guangdong Administration for Market Regulation(Chinese version only):
http://amr.gd.gov.cn/
Labour Laws and Regulations in the Mainland
The Labour Contract Law of the People’s Republic of China came into effect on 1 January 2008, and regulates employment relationships establishment, execution, performance, revision, dissolution or termination of labour contracts between enterprises/various types of organisations and employees within the Mainland. In 2012, the Standing Committee of the National People's Congress passed the amendment of the original Labour Contract Law. The amended Labour Contract Law came into effect on 1 July 2013.
The Labour Contract Law requires employers to establish employment relationships and enter into written labour contracts with employees within one month from the date when the employee begins to work. In case the employer fails to enter into a written labour contract with the employee within one year after commencement of the employment, an employment contract with indefinite terms would be deemed to have been established with the employee. In such case, the employer should pay the employee double salary on a monthly basis since the expiration of the first month of the employment to the expiration of the one year period.
On 1 July 2021, the General Office of the Ministry of Human Resources and Social Security issued the Guidelines for Conclusion of Electronic Labour Contracts for those employers and employees who are willing to enter into electronic labour contracts by consensus for reference, so as to ensure that the electronic labour contracts are true, complete, accurate, and not tampered with.
For more information about the Labour Contract Law, please refer to the website of the Mainland Government:http://english.www.gov.cn/archive/laws_regulations/2014/08/23/content_281474983042501.htm
For more details of the Guidelines for Conclusion of Electronic Labour Contracts, please refer to the website of the Mainland Government (Chinese version only):http://www.mohrss.gov.cn//xxgk2020/fdzdgknr/zcfg/gfxwj/ldgx/202107/t20210709_418119.html
Things to Note when Hiring Employees
Recruitment methods differ between FIEs and other employers in the Mainland (“employers”) and ROs. According to the Labour Law of the People’s Republic of China which took effect on 1 January 1995 (recently amended on 29 December 2018), the Labour Contract Law of the People’s Republic of China which took effect on 1 January 2008 (recently amended on 28 December 2012) and other laws or regulations, employers can hire staff from the local workforce based on their operational needs, as well as determine their own organisation structures and human resources. Recruitment can be carried out through different channels, such as engaging authorised professional agencies, posting advertisements on media, etc.
ROs are required to employ Chinese staff through licensed labour dispatch agencies under labour dispatch arrangement. A RO must sign a service contract with a labour dispatch agency and the labour dispatch agency would establish employment relationship with the Chinese employees.
In the past, Hong Kong, Macao and Taiwan residents were required to obtain a work permit for working in the Mainland. According to the Notice on Matters concerning the Employment of Hong Kong, Macao and Taiwan Residents in the Chinese Mainland issued by the Ministry of Human Resources and Social Security on 23 August 2018 and other relevant regulations, as from 28 July 2018, Hong Kong, Macao and Taiwan residents are no longer required to obtain the "Taiwan, Hong Kong and Macao Work Permit" for employment in the Mainland. Hong Kong, Macao and Taiwan residents can use valid identity documents such as residence permits for Hong Kong, Macao and Taiwan residents, mainland travel permits for Hong Kong and Macao residents, and mainland travel permits for Taiwan residents for purposes associated with various human resources and social security services. Business licenses, labour contracts (employment contracts), wage payment records, or social insurance payment records can be used as proof of employment in the Mainland.
For more information about the Notice on Matters concerning the Employment of Hong Kong, Macao and Taiwan Residents in the Chinese Mainland, please refer to the website of the Mainland Government (Chinese version only):
http://www.mohrss.gov.cn/jycjs/gongzuotongzhi/201808/t20180828_300019.html
According to the Regulation on Individual Industrial and Commercial Households which came into effect from November 2011, there is no limit to the number of employees that can be hired by a sole proprietor. The sole proprietor should establish employment contract with employees, and should discharge all obligations prescribed under relevant laws and regulations and the employment contract.
Salary and Welfare
Working Hours and Salary
The employers could determine their salary and benefit package for their employees. However, salary and benefits paid to employees shall not be lower than the minimum wages set by national and local governments. According to their management needs, the employers could establish employee incentive plans, such as performance bonus and stock options, to attract talents. Salary shall be paid at least on a monthly basis in local currency. Detailed payment date can be agreed upon and documented in the employment contract.
FIEs and other employers should follow requirements about the working hour prescribed by labour laws in the Mainland. Employees subject to standard working hour system shall work for no more than 8 hours a day and no more than 40 hours a week. For posts that meet relevant criteria, employers could choose to adopt the special working hour system after obtaining approval from the relevant authorities in accordance with local regulations.
The employers should deduct the Individual Income Tax (IIT) before making salary payments to employees, and filing tax with relevant tax authorities during tax filing period after salary payment.
Social Security and Housing Provident Fund
The Social Security Law of the People’s Republic of China (recently amended on 29 December 2018) which took effect on 1 July 2011 has established a basic social security system, including basic pension, basic medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance. For any employees being employed in the Mainland, employers should be responsible for contributing to social security on their behalf. The employers' social security contribution, together with the employees' personal contribution, makes up the employees' social security benefits.
For Hong Kong residents, employers should make contribution to the social security scheme for them. Pursuant to the Interim Measures for Participation in Social Insurance by Hong Kong, Macao and Taiwan Residents in the Mainland, effective from 1 January 2020, regulations were made on the participation in social insurance by Hong Kong, Macao and Taiwan residents who work, live or attend school in the Mainland, and it specifies that Hong Kong, Macao and Taiwan residents who participate in social insurance is entitled to social insurance benefits. Specific regulations are as follows:
For more details of the Interim Measures for Participation in Social Insurance by Hong Kong, Macao, and Taiwan Residents in the Mainland, please refer to the website of the Mainland Government (Chinese version only):
http://www.mohrss.gov.cn/xxgk2020/gzk/gz/202112/t20211229_431769.html
According to Administrative Regulations on the Housing Provident Fund promulgated by the State Council, employers and employees are required to contribute housing provident fund for employees.
For other labour related laws and regulations, please refer to the website of the Human Resources and Social Security Department of Guangdong Province (Chinese version only):
https://hrss.gd.gov.cn
Foreign investors who have set up FIEs or ROs would generally be subject to the following types of China tax: Corporate Income Tax, Withholding Tax, Value Added Tax, Consumption Tax and local surcharges, Stamp Duty, Urban Land Use Tax, Property Tax, Deed Tax, Land Appreciation Tax, Customs Duties, etc. Hong Kong investors shall follow the arrangements as for foreign investors. For more information about taxation, please call the hotline of Guangdong Provincial Tax Service, State Taxation Administration: (86 20) 12366.
Corporate Income Tax (CIT)
Overview
Enterprises incorporated in the Mainland (such as FIEs) or foreign enterprises incorporated according to the laws of other jurisdiction but have effective management located in the Mainland should pay CIT in the Mainland on their world-wide income. The applicable CIT rate is 25%. With respect to foreign enterprises that have no permanent establishment or fixed place of business in the Mainland, or have permanent establishment or fixed place of business in the Mainland but the income derived from the Mainland is not effectively connected with the permanent establishment or fixed place of business, they would be subject to a Withholding Tax (WHT) on their Mainland-sourced income. The statutory WHT rate is 10%, which could be reduced by applicable tax treaties between the Mainland Government and other national governments.
CIT Taxable income is assessed based on an enterprise's profit, but not necessarily equal to its accounting profit. It is the net amount of the annual gross income less non-taxable income and tax-exempt income, and after deducting applicable costs and expenses and offsetting the net operating loss carried over from previous years.
CIT is calculated on an annual basis and within each tax year, taxpayers should perform provisional CIT filings on a monthly or quarterly basis. The tax year of CIT taxpayers is the calendar year (January 1 to December 31). The provisional CIT filing should be performed within 15 days after the end of each month/quarter. Taxpayers should perform annual CIT filings and settle the CIT due/refund within 5 months from the end of each calendar year.
Value-added Tax (VAT), Consumption Tax (CT) and Local Surcharges
Value Added Tax (VAT)
Entities and individuals shall pay VAT under the regulations if they are engaged in sales of goods, provision of processing, repairs or replacement services, import of goods, sales of services, intangible assets or real estate property in the Mainland.
Prevailing VAT rates were effective from 1 April 2019, and VAT rates applicable to major businesses are as follows:
General taxpayers
| Taxable items | Tax rate (%) |
| Sales or import of goods, provision of processing, repairs or replacement services, tangible movable property leasing | 13% |
| Real estate leasing, sales of real estate, construction services, transportation services, transfer of land use rights, etc. | 9% |
| Postal service, telecommunication services, financial services, modern services, life-support services, sales of intangible assets (transfer of land use rights excluded), etc. | 6% |
| Export of goods | 0% |
For small-scale taxpayers, sales is the total consideration received plus other charges, and VAT is calculated and paid at 3% of sales by simple taxation approach.
Consumption Tax (CT)
CT is imposed on top of VAT for the sale of 14 specific kinds of consumer products. According to the Tentative Regulations on Consumption Tax of the People’s Republic of China (amended in 2008 and came into force since 1 January 2009), the 14 kinds of products subject to CT include: cigarettes, wine and alcohol, cosmetics, gasoline, luxury cars, golf balls and equipment, yachts, luxury watches, etc. CT payable is calculated on the basis of sales amount and/or the sales volume/quantity depending on the product item concerned. From 1 December 2014, CT is no longer imposed on small-displacement motorcycles with a cylinder capacity of less than 250 ml (exclusive), automobile tires, leaded gasoline for cars and alcohol.
Starting from 1 February 2015, battery and coatings shall be subject to CT in order to promote energy conservation and environmental protection. CT of 4% will be levied on the sale price (before VAT) at the point of production, processing and import of battery and coatings.
From 10 May 2015, the ad valorem rate for wholesale of cigarette is increased from 5% to 11% plus unit rate of RMB 0.005 per cigarette. Since then, consumption tax laws and regulations on cosmetics, luxury cars, cigarettes and other consumer goods have been amended for several times.
Local Surcharges
Urban Maintenance and Construction Tax (UMCT), Education Surcharge (ES) and Local Education Surcharge (LES) are calculated according to the actual payment of VAT and CT (hereinafter referred to as "the Two Taxes"), which are filed and paid together. The calculation is based on the actual payment of the Two Taxes multiplied by the tax rates respectively.
The Law of the People’s Republic of China on Urban Maintenance and Construction Tax (hereunder referred to as “UMCT Law”) was passed at the 21st Session of the 13th National People’s Congress Standing Committee on 11 August 2020. The UMCT Law has been implemented since 1 September 2021. In particular, the UMCT Law has stipulated that no UMCT will be levied on the VAT and CT arising from importing goods or the entities and individuals outside the territory of the Mainland providing repair and replacement services, other services and intangible assets to the entities and individuals in the Mainland.
For more details of the UMCT Law, its tax calculation, and preferential policies, please refer to the following websites of the Mainland Government:
Tax Policies for Cross-border E-commerce Retail Imports and Exports
To build a fair market for competition and to promote healthy development of cross-border e-commerce retail imports, the imported commodities from cross-border e-commerce retail (Business to Customer, i.e., B2C) shall be subject to Customs Duty (CD), import-level VAT and CT. The taxpayers shall be the individuals purchasing the imported B2C commodities. The dutiable values of imported commodities shall be their actual transaction prices including the retail prices of the goods and accompanying freight and insurance expenses. E-commerce enterprises, enterprises engaging in e-commerce trading platform or logistics enterprises may act as the withholding agents.
Applicable Tax Treatments
| Amount of the B2C import transaction (threshold: RMB5,000 per transaction and RMB 26,000 per year individually) | Applicable tax treatments |
| Not exceeding the threshold | CD rate is 0% on a provisional basis. Import-level VAT and CT shall be imposed with a 30% reduction on a provisional basis, i.e., import-level VAT and CT exemption will no longer be available. |
| Exceeding the threshold (including single inseparable commodity with a dutiable value exceeding RMB 26,000) | Taxes shall be imposed in full amount according to the general trade mode. |
Customs Duties
Consignee of imported goods, consignor of export goods, owner of entry articles are taxpayers of Custom Duties. All goods permitted to be imported into or exported out of and all articles allowed to enter into the Mainland shall be subject to payment of Customs Duties unless otherwise specified by the State Council. Customs duties shall be levied according to the Regulations of the People's Republic of China on Import and Export Duties effective from January 2004. The tariff items, tariff heading numbers and tariff rates as proscribed in the Customs Import and Export Tariffs of China and the Import Tariff Rates of the People’s Republic of China for Entry Articles are formulated by the State Council.
Customs Offices are responsible for the collection of Customs Duties of goods imported into the Mainland and other import taxes (including import VAT and consumption tax). To comply with relevant World Trade Organization (WTO) requirements, tariff rates of imported goods have gradually been reduced since 2002. Customs Duties are computed based on customs value assessed by the Customs Offices or quantity, and are collected by the Customs Offices.
With State Council’s approval, starting from 1 July 2018, the preferential rates for the import tariffs for daily consumables, such as skin care products, suits, short boots and diapers, have been reduced according to the Notice from the Customs Tariff Committee of the State Council in Regard to Adjusting the Import Tariff for Certain Daily Consumables issued on 31 May 2018 by the State Council. For more details, please refer to the website of the Mainland Government (Chinese version only):
http://www.gov.cn/xinwen/2018-06/01/content_5295388.htm
Stamp Duty (SD)
On 10 June 2021, the 29th Meeting of the Standing Committee of the 13th National People's Congress passed the Stamp Tax Law of the People's Republic of China (hereinafter referred to as the "Stamp Tax Law"), which came into force on 1 July 2022.
According to the Stamp Tax Law, units and individuals that have written taxable vouchers and conducted securities transactions within the territory of the Mainland are taxpayers of SD and shall pay SD in accordance with the provisions of this law. Units and individuals that submit taxable vouchers for domestic use outside the Mainland shall pay SD in accordance with the provisions of this law.
For more details of the Stamp Tax Law, please refer to the website of the Mainland Government (Chinese version only):
http://www.gov.cn/xinwen/2021-06/11/content_5616922.htm
Deed Tax (DT)
The Deed Tax Law of the People’s Republic of China (hereunder referred to as “DT Law”) was passed at the 21th Session of the 13th National People’s Congress Standing Committee on 11 August 2020. The DT Law has been implemented since 1 September 2021.
According to the DT Law, any transfer of the ownership of the land or housing within the territory of the Mainland by the entities and individuals shall, as taxpayers of the DT, pay the DT in accordance with this Law. The basis for the calculation of DT shall be as follows:
Where the transaction price or the difference between the prices under an exchange declared by a taxpayer is obviously low with no reason, the competent tax authority shall check and ratify it in accordance with the Law of the People's Republic of China on the Administration of Tax Collection.
The DT rates range from 3% to 5%. Specific applicable deed tax rates shall be proposed by the People's Government of each province, autonomous region or municipality directly under the Central Government within the range of tax rates as provided above, and be reported to the Standing Committee of the People's Congress at the local level for approval, and then be reported to the Standing Committee of the National People's Congress and the State Council for record. Each province, autonomous region or municipality directly under the Central Government may, in line with the procedures prescribed above, determine differential tax rates for the transfer of ownership of housing with different subjects, in different regions and of different types.
For details of the DT Law, please refer to the following website of the Mainland Government:
http://www.npc.gov.cn/englishnpc/c23934/202105/dbebaeae4c3d4d6488791bd659e6b59d.shtml
For other tax related laws and regulations, please refer to the website of the Guangdong Provincial Tax Service, State Taxation Administration (Chinese version only):
https://guangdong.chinatax.gov.cn
Application for Tax Treaty Relief under the Mainland-Hong Kong Tax Arrangement
The Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (hereinafter referred to as "Mainland-Hong Kong Tax Arrangement") and its first Protocol came into effect in December 2006. Subsequently, the two parties agreed and signed the second, third, fourth and fifth protocol of the Mainland-Hong Kong Tax Arrangement in June 2008, May 2010, April 2015 and July 2019. According to the Mainland-Hong Kong Tax Arrangement, to enjoy preferential tax treatment of the arrangement, qualified Hong Kong tax residents, who obtained dividends, interests, royalties and/or capital gains from transfer of property from the Mainland China, could apply for pre-approval with the relevant Mainland tax authorities for eligibility of preferential tax arrangements. For the Mainland-sourced dividends, interests, royalties and capital gains derived by Hong Kong people who are not eligible for preferential treatment under Mainland-Hong Kong Tax Arrangement, it would be subject to WHT at the standard rate of 10%.
| Dividends | Interests | Royalties | Capitals gains | |
| Applicable WHT rates under Mainland-Hong Kong Tax Arrangement (Note) | 5% | 7% | 7% (Royalties derived from aircraft and ship leasing businesses shall be subject to the preferential rate at 5%) |
If certain conditions are met, tax can be levied on the other party |
Note: The lower rates would be applicable if the recipient of relevant passive income qualifies necessary requirements, and it is entitled to the preferential tax treatments under the Mainland-Hong Kong Tax Arrangement.
To simplify the implementation of Mainland-Hong Kong Tax Arrangement, the competent tax authorities of the Mainland and Hong Kong have negotiated and reached an agreement. The Certificate of Hong Kong Tax Resident Status issued by the Hong Kong competent authority to a Hong Kong tax resident for a particular calendar year may serve as proof of its Hong Kong tax residency for that calendar year and the two succeeding calendar years for claiming the benefits under the Mainland-Hong Kong DTA. If there have been any changes resulting in failure to meet any condition of the residency status, the resident would no longer be entitled to the benefits under the Mainland-Hong Kong DTA since the date of the change.
Types of intellectual property in the Mainland include trademark, patent, copyright, business secrets, geographical indication, etc. There are relevant laws and regulations for the protection of IP rights, sanction of IP rights infringement and settlement of IP rights dispute, including the Trademark Law, the Patent Law, the Copyright Law, the Anti-Unfair Competition Law, etc.
On 28 May 2020, the Third Session of the 13th National People's Congress passed the Civil Code of the People's Republic of China (hereinafter referred to as the “Civil Code”), which has been officially implemented on 1 January 2021. There are 51 articles in the Civil Code relating to IP rights.
For more details of the Civil Code, please refer to the website of the Mainland Government:
http://www.npc.gov.cn/englishnpc/c23934/202012/f627aa3a4651475db936899d69419d1e/files/47c16489e186437eab3244495cb47d66.pdf
Remedies on IP Rights Infringement
When infringement on IP rights occurs, the IP rights’ holder or other affected parties may request an administrative remedy from relevant administrative authorities or file lawsuit with the People’s Court. The main administrative punishments on IP rights infringement include: ordering the infringing party to stop IP infringement activities, confiscating and destructing the goods and tools relating to the infringement and penalty; punishment from the People’s Court include: ordering the infringing party to stop IP infringement activities, ordering the infringing party to destruct the goods and tools relating to the counterfeit and infringement and to compensate the IP rights holder for any losses incurred and ordering the infringing party to eliminate the adverse effects and make an apology. In case of severe IP rights violation, the infringing party might be subject to criminal punishment.
For more information about applying for a patent, trademark and copyright in the Mainland, please seek professional advice or visit the official websites of relevant Government authorities listed below:
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