New Rules For Non-Resident Enterprise Income Tax
March 24, 2010
On February 20, 2010, the State Administration of Tax (the “SAT”) issued “Measures on the Administration of Approval and Collection of Non-resident Enterprise Income Tax” (the “Measures”). Non-resident corporations, defined in Article 3, Paragraph 2 of the Enterprise Income Tax Law of China, are governed by the Measures regarding enterprise income tax (EIT) issues. The EIT of representative offices of foreign enterprises is covered by Circular 18 [2010] issued by SAT on the same day. The Measures went into effect of the date of issuance.
Under the Measures, non-resident enterprises shall: set up their account books in accordance with the Law on the Administration of Tax Collection and relevant laws and regulations; record and settle their accounts in accordance with legal and valid invoices; and, in accordance with the principle of correspondence of actual functions to assumed risks, accurately calculate their taxable income, and report and pay the EIT for their actual situation.
If a non-resident corporation has not properly kept account books and cannot calculate the amount of its taxable income, the tax authority will use one of the following methods to decide the amount of payable EIT.
(1) Gross Income-Based Method — This method should be applied when a non-resident corporation calculates its gross income correctly but cannot accurately compute its costs and expenses. The formula is as follows:
Deemed taxable income = Gross income * Deemed profit rate
(2) Cost-Based Method – This method applies when a non-resident corporation calculates its costs and expenses accurately but cannot correctly compute its gross income. The formula is as follows:
Deemed taxable income = The total of costs and expenses / (1 – Deemed profit rate) * Deemed profit rate
(3) Expenditures-Based Method – This method applies when a non-resident corporation accurately calculates its expenditure for operations but cannot correctly compute its gross income or its costs and expenses. The formula is as follows:
Deemed taxable income = Total of expenditure for operations / (1 – Deemed profit rate – EIT rate) * Deemed profit rate
The tax authority should use the deemed profits rate below when calculating the deemed taxable incomes:
(i) The deemed profit rate for income from project construction, design and consulting is 15% to 30%;
(ii) The deemed profit rate for income from management service is 30% to 50%;
(iii) The deemed profit rate for income from other business activities should be no less than 15%.
The tax authority may raise the profit rate if it reasonably holds, with good grounds, that the actual profit rate of a non-resident corporation is higher than the corresponding deemed profit rate. Where a non-resident corporation generates income from more than one type of the activities listed above, the tax authority shall divide the income from the different types of activities and apply appropriate deemed profit rate to the different elements of the income. If the income cannot be divided accurately, the higher deemed profit rate will be applied.
When a non-resident corporation provides equipment installment, training, management and other services to a Chinese resident buyer of its equipment or other goods, the sales contract of such equipment or goods may not stipulate the price of such related services, or the price of service may be unreasonable. In those cases, the tax authority can refer to the general price in the same or similar industry and decide the deemed income from the services provided. In case where there is no general price to refer to, the tax authority may decide the deemed income from the service, which should be no less than 10% of the total price of the sales contract.
With regard to non-resident enterprises providing labor services for customers located in China, if the entire service is provided within China, the revenue in full shall be subject to EIT in China. If the service is provided both inside and outside of China, then the revenue shall be divided by services provided within China and outside of China, and the revenue derived inside China shall be subject to EIT.
Source: Jingyuan Sun
www.sheppardmullin.com
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New China Customs Enforcement Regulations of IPR
February 1, 2010
The General Administration of Customs passed several new regulations that aim to strike a balance between Intellectual Propterty Rights holders and those who import and export goods.
Under old regulations, Customs officials were allowed to “dispose” of confiscated counterfeit goods by removing unlawfully affixed trademarks, and auctioning off the goods. These goods commonly reappeared in the market and thus caused monetary harm to the rights owner.
The new regulations now require customs officials to seek the opinion of the relevant IPR owners before it may dispose of any confiscated counterfeit goods. This regulation is a direct attempt to bring China up to the WTO TRIPS agreement standard, which specifically states that sized goods should be disposed of “outside the channels of commerce in such manner as to avoid any harm caused to the right holder, or destroyed” and “the simple removal of the trade mark unlawfully affixed shall not be sufficient.”
While this move is undoubtedly a step in the right direction, it is important to note that the regulation requires customs officials to seek the “opinion” rather than the “consent” of the relevant IPR owner. It thus does not give IPR owners the right to demand the destruction of counterfeit goods rather than the auctioning off of such products.
Another salient feature of these new regulations is that IPR owners will now be able to seek settlements with the infringing party without undergoing a formal customs investigation. It is hoped that this will allow IPR owners to gain valuable information regarding the supply and distribution chains of such counterfeit items while also substantially reducing the resources required of the Customs Department to investigate each and every claim.
The new regulations also contained several smaller modifications such as changes to the notification protocol, the processing of renewal applications, and the cancellation of Customs recordals. All of these modifications are designed to streamline and expedite the customs enforcement process.
Source: SIPO
www.sipo.gov.cn
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To What a Sum can a Trademark Infringement Constitute a Crime in China?
January 31, 2010
According to Interpretation by the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues of Concrete Application of Laws in Handling Criminal Cases of Infringing Intellectual Property, using an identical trademark on the same merchandise without permission of its registered owner in any of the following circumstances falls under the definition of “the circumstances are serious” stipulated in Article 213 of the Criminal Law and shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also, or shall only, be fined for committing the crime of forging registered trademarks:
(1) the amount of illegal business volume being more than RMB 50,000 or that of illegal gains being more than RMB 30,000;
(2) forging more than two registered trademarks, the amount of illegal business volume being more than RMB 30,000 or that of illegal gains being more than RMB 20,000;
(3) other circumstances of a serious nature.
Whoever having any of the following acts that falls under the definition of “the circumstances are especially serious” stipulated in Article 213 of the Criminal Law shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined for committing the crime of forging registered trademarks:
(1) the amount of illegal business volume being more than RMB 250,000 or that of illegal gains being more than RMB 150,000;
(2) forging more than two registered trademarks, the amount of illegal business volume being more than RMB 150,000 or that of illegal gains being more than RMB 100,000;
(3) other circumstances of an especially serious nature.
Whoever knowingly sells commodities bearing counterfeited registered trademarks, if the amount of sales is more than RMB 50,000, and thus falls under the definition of “the amount of sales is relatively large” stipulated in Article 214 of the Criminal Law shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also, or shall only, be fined for committing the crime of selling commodities bearing counterfeited registered trademarks.
Whoever selling such commodities of more than RMB 250,000 in value falls under the definition of “the amount of sales is huge” stipulated in Article 214 of the Criminal Law and shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined for the crime of selling commodities bearing counterfeited registered trademarks.
Whoever forges or makes representations of another person’s registered trademarks without authorization of the person or sells such representations in any of the following circumstances and thus falls under the definition of “the circumstances are serious” stipulated in Article 215 of the Criminal Law shall be sentenced to fixed-term imprisonment of not more than three years, criminal detention or public surveillance and shall also, or shall only, be fined for committing the crime of illegally making registered trademarks and selling illegally-made registered trademarks:
(1) the amount of the representations of other person’s registered trademarks forged or made without authorization or that of the sold representations of other person’s registered trademarks forged or made without authorization being more than 20,000 copies, or the amount of illegal business volume being more than RMB 50,000, or the amount of illegal gains being more than RMB 30,000;
(2) the amount of the representations of other person’s registered trademarks forged or made without authorization or that of the sold representations of more than two of other person’s registered trademarks forged or made without authorization being more than 10,000 copies, or the amount of illegal business volume being more than RMB 30,000, or the amount of illegal gains being more than RMB 20,000;
(3) other circumstances of a serious nature.
Whoever having any of the following acts that falls under the definition of “circumstances of an especially serious nature” stipulated in Article 215 of the Criminal Law shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined for committing the crime of illegally making registered trademarks and selling illegally-made registered trademarks:
(1) the amount of the representations of other person’s registered trademarks forged or made without authorization or that of the sold representations of other person’s registered trademarks forged or made without authorization being more than 100,000 copies, or the amount of illegal business volume being more than RMB 250,000, or the amount of illegal gains being more than RMB 150,000;
(2) the amount of the representations of other person’s registered trademarks forged or made without authorization or that of the sold representations of more than two of other person’s registered trademarks forged or made without authorization being more than 50,000 copies, or the amount of illegal business volume being more than RMB 150,000, or the amount of illegal gains being more than RMB 100,000;
(3) other circumstances of an especially serious nature.
Source: www.ipr.gov.cn
Tags: Trademark, Interpretation, InfringementRelated Posts:
Protection Measures for IPRs during Exhibitions in China
January 31, 2010
Chapter I General Provisions
Article 1 The present Measures are formulated according to the Foreign Trade Law of the People’s Republic of China, the Patent Law of the People’s Republic of China, the Trademark Law of the People’s Republic of China, and the Copyright Law of the People’s Republic of China as well as the relevant administrative regulations for the purpose of intensifying the IPRs protection during exhibitions, safeguarding the order of the exhibition industry and promoting the sound development thereof.
Article 2 The present Measures shall apply to the protection of relevant patents, trademarks and copyrights in all kinds of exhibitions, trade fairs, expositions, commodity fairs and shows concerning the economic and technical trade as held within the territory of the People’s Republic of China.
Article 3 The administrative department of exhibitions shall intensify the coordination, supervision, examination regarding the IPRs protection during exhibitions and safeguard the normal trading order therein.
Article 4 The exhibition sponsor shall safeguard the legitimate rights and interests of IPRs holders legally. The exhibition sponsor shall, when attracting investment and canvassing exhibitions, intensify the IPRs protection for participants to the exhibition as well as the examination of the IPRs status of the items on exhibition (including exhibited items, exhibition boards and relevant publicity materials, etc.). During an exhibition, the sponsor shall actively cooperate with the administrative IPRs department in the IPRs protection work.
The exhibition sponsor may, by the manner of signing the clause or contract on the IPRs protection with the participants of the exhibition, intensify the IPRs protection during the exhibition.
Article 5 The participant of exhibition shall take part in an exhibition legally, not infract the IPRs of any other person or entity and assist the administrative IPRs department or judicial department in the relevant investigation.
Chapter II Treatment for Complaints
Article 6 If an exhibition lasts for 3 days or more and if the administrative department of exhibitions believes it is required, the exhibition sponsor shall establish an office in charge of IPRs complaints during the exhibition. Where an office in charge of IPRs complaints is established, the IPRs administrative department at the locality of the exhibition shall dispatch its personnel to station therein and handle the case of infringement in accordance with law.
In case no office in charge of complaints is established for an exhibition, the IPRs administrative department at the locality of exhibition shall intensify the guidance for and supervision over the IPRs protection during the exhibition as well as the handling of relevant cases therein. The exhibition sponsor shall publicize the contact persons and ways of the IPRs administrative department at the locality of the exhibition in an eye-catching place of the exhibition venue.
Article 7 An office in charge of IPRs complaints in an exhibition shall be comprised of the personnel from the sponsor of the exhibition, the administrative department of exhibitions, the IPRs administrative department in charge of patents, trademarks, and copyrights, and perform the following functions and duties:
(1) Receiving the complaints of the IPRs holders, and suspending the item as suspected of infringement on IPRs on display during the exhibition;
(2) Transferring the relevant complaint materials to the competent IPRs administrative department;
(3) Coordinating and supervising and urging the treatment for complaints;
(4) Carrying out the statistic and analysis on the information regarding the IPRs protection during the exhibition; and
(5) Any other relevant matters.
Article 8 An IPRs holder may file a complaint to the office in charge of IPRs complaints during an exhibition or to the IPRs administrative department. The IPRs holder shall, when filing a complaint to the office in charge of IPRs complaints, submit the following materials:
(1) A legitimate and effective certificate of IPRs ownership: where any patent is involved therein, the patent certificate, the text of patent announcement, the identity certification of the patent owner, the certification on the legal status of the patent shall be submitted; where any trademark is involved therein, the certification documents of trademark registration shall be submitted, which shall be confirmed by means of the signature or seal affixed by the complainant, and the identity certification of the trademark owner shall be submitted as well; where any copyright is involved therein, the certification of the copyright and the identity certification of the copyright owner shall be submitted;
(2) The basic information about the parties as suspected to have committed any infringement;
(3) The explanations and evidence for any suspected infringement; and
(4) Where an agent is entrusted to file a complaint, the relevant Power of Attorney shall be submitted.
Article 9 In the case of any failure to meet the provisions of Article 8 of the present Measures, an office in charge of IPRs complaints during an exhibition shall inform the related complainant or claimant timely to supplement the relevant materials. In case it fails to make the supplement, the complaint shall not be accepted.
Article 10 Where a complainant brings any damage to the relevant respondent by submitting any false complaint material or by any other fabricated complaint, he shall be subject to the relevant legal liabilities.
Article 11 After receiving the complaint materials accorded with Article 8 of the present Measures, The office in charge of IPRs complaints during an exhibition shall transfer it to the relevant IPRs administrative department within 24 hours．
Article 12 When the local IPRs administrative department accepts the requirement of complaint or claim, it shall inform the relevant exhibition sponsor as well as the relevant respondent to the complaint or claim timely.
Article 13 In the procedures for handling any complaint or claim concerning infringement on IPRs, the local IPRs administrative department may, according to the exhibition period, designate the limit of answer time for the relevant respondent to a complain or claim．
Article 14 Where a respondent to a complaint or claim submits his Statement of answer, the local IPRs administrative department shall make a decision and deliver it to the two parties timely, unless any further investigation is required.
Where the respondent to a complaint or claim fails to submit his Statement of answer within the time limit, the local IPRs administrative department shall not be influenced making the decision.
Article 15 Where an exhibition is concluded, the relevant IPRs administrative department shall notify the treatment decision to the exhibition sponsor timely. The exhibition sponsor shall finish the statistic and analysis work on IPRs protection during the exhibition and report the relevant circumstance to the IPRs administrative department timely.
Chapter III Patent Protection during Exhibition
Article 16 Where any office in charge of IPRs complaints requires the assistance of any local intellectual property bureau, the local intellectual property bureau shall provide positive cooperation and participate in the IPRs protection during the exhibition. The local intellectual property bureau may carry out the following work during the exhibition:
(1) Accepting a complaint of suspected infringement on IPRs is transferred by the office in charge of IPRs complaints in the exhibition, and handling it according to the relevant provisions and regulations of the patent law;
(2) Accepting the claim of treatment for any dispute over suspected infringement on patent relating to any exhibited item and handling it according to the provisions of Article 57 of the Patent Law; and
(3) Accepting the tip-offs on any suspected counterfeit of other’s patent or imitated patent relating to any exhibited item, or investigating and handling any action of counterfeit of other’s patent or imitated patent relating to any exhibited item by authority , and giving a punishment according to the relevant provisions of Articles 58 and 59 of the Patent Law.
Article 17 Under any of the following circumstances, the local intellectual property bureau may not accept any complaint of patent infringement or claim for treatment:：
(1) Where a complainant or claimant has filed a lawsuit of patent infringement to the people’s court;
(2) Where any patent is in the requiring procedures for declaring invalidation of patent right;
(3) Where any dispute over the ownership of the patent right is in the trial procedures of the people’s court or in the mediation procedures of the administrative department of patent; or
(4) Where any patent right has been terminated and its owner is attempting to resume the patent right.
Article 18 The local intellectual property bureau shall, when notifying the respondent to a complaint or claim, conduct instant investigation for obtaining the evidence, read and copy the relevant documents relating to the case, inquire of the parties concerned, carry out on-the-spot inspection by such means as camera shooting or video camera shooting, or collect the evidence by sampling.
The local intellectual property bureau shall, when collecting the evidence, make the note that shall have the signatures or seals of relevant undertaker and parties concerned under investigation for evidence collection. Where any party concerned under investigation for evidence collection refuses to render his signature or seal on the note, the reason shall be indicated on the note. Where any other person is on the spot, he may render his signature on the note at the same time.
Chapter IV Trademark Protection during an Exhibition
Article 19 Where an office in charge of IPRs complaints during an exhibition requires the assistance from the local industry and commerce administrative department, the latter organ shall provide active cooperation and participate in the IPRs protection work during the exhibition. The following works during the exhibition by the local industry and commerce administrative department may include:
(1) Accepting complaints of suspected infringement on trademark transferred by the office in charge of IPRs complaints during the exhibition and handling them according to the relevant provisions of laws and regulations on trademark;
(2) Accepting complaints of infringement on the right to exclusive use of trademark in accordance with the provisions of Article 52 of the Trademark Law; and
(3) Investigating and punishing any case involving trademark irregularity by authority.
Article 20 Under any case of the following circumstances, the local industry and commerce administrative department may refuse to accept any complaint or claim for treatment concerning infringement on the right to exclusive use of trademark:
(1) Where a complainant or claimant has filed a lawsuit of trademark infringement to the people’s court; or
(2) Where any right of trademark has been invalidated or cancelled.
Article 21 The local industry and commerce administrative department may, after deciding to accept any complaint or claim, carry out the investigation and treatment according to the relevant provisions of laws and regulations on trademark.
Chapter V Copyright Protection during Exhibition
Article 22 Where an office in charge of IPRs complaints during an exhibition requires the assistance from the local administrative department for copyright, the latter organ shall provide active cooperation and participate in the IPRs protection during the exhibition. The following works by local administrative department for copyright during the exhibition may include:
(1) Accepting the complaints of suspected infringement on copyright transferred by the office in charge of IPRs complaints during the exhibition and handling them according to the relevant provisions of laws and regulations on copyright; and
(2) Accepting the complaints of infringement on copyright in accordance with the provisions of Article 47 of the Copyright Law and giving a punishment according to the relevant provisions of the Copyright Law.
Article 23 The local administrative department for copyright may, after accepting a complaint or claim, adopts the following means to collect evidence:
(1) Reading and copying the documents and archives, account books or any other written materials relating to the suspected infringement;
(2) Collecting the evidence by sampling the duplicate of the suspected of infringement; and
(3) Registering and preserving the duplicate of the suspected of infringement.
Chapter VI Legal Liabilities
Article 24 Where the local IPRs administrative department believes that a complaint of suspected infringement on IPRs is in fact, it may punish the exhibitor in collaboration with the administrative department of exhibitions according to law.
Article 25 Where the local IPRs administrative department believes that a claim for the treatment of suspected infringement on any invention right or new utility model right is in fact, relevant treatment decision shall be decided, according to the provisions of paragraph 1 of Article 11 of the Patent Law on prohibiting promised sale as well as the provisions of Article 57 of the Patent Law on ordering the infringer to stop his infringement immediately, and order the respondent to the claim to withdraw all the exhibited items of infringement, to destroy the publicity materials of introduction to exhibited items of infringement and to change the exhibition board of introduction to exhibited items of infringement. .
Where the local IPRs administrative IPRs department believes that a claim for the treatment of suspected infringement on any patent of exterior design and the respondent to the claim sells his items on exhibition is in fact, the relevant treatment decision shall be decided, according to the relevant provisions of paragraph 2 of Article 11 of the Patent Law on prohibited sales action and Article 57 of the Patent Law on ordering the infringer to stop his infringement action immediately, and order the respondent to the claim to withdraw any exhibited item of infringement from the exhibition.
Article 26 Where anyone fabricates any other’s patent or fabricates any patented by unpatented product, or fabricates any patented method by non-patented method , the local intellectual property bureau shall give a punishment according to the provisions of Article 58 and 59 of the Patent Law.
Article 27 Where the local industry and commerce administrative department believes that a claim for treatment of any infringement on trademark is in fact, it shall give a punishment according to the relevant provisions of the Trademark Law and the Regulation on the Implementation of the Trademark Law, etc..
Article 28 Where the administrative department for copyright believes that a claim for treatment of any infringement on copyright as well as the related rights is in fact, relevant punishment shall be given according to the provisions of Article 47 of the Copyright Law, the relevant exhibited items of infringement as well as publicity materials of introduction to exhibited items of infringement shall be confiscated and destroyed, and the exhibition boards of introduction to exhibited items of infringement shall be changed.
Article 29 Where, upon investigation, any exhibited item under complaint or claim of infringement has been determined or decided in fact by the people’s court or the IPRs administrative department and has taken legal effect , the local administrative IPRs department may directly make a decision on treatment as prescribed in Article 26, 27, 28 or 29.
Article 30 Where a claimant pleads not only to prohibit an infringing exhibition conducted by the infringer, but also pleads to prohibit any other IPRs infringement committed by the same infringer, the local IPRs administrative department may give treatment to any suspected infringement that occurs within its jurisdiction area according to the relevant provisions of laws, regulations and rules on IPRs.
Article 31 Where any infringement by a exhibitor is in fact, the administrative department of exhibitions may make an announcement to this exhibitor in accordance with the law. Where the infringements by the exhibitor were more than twice consecutively, the exhibition sponsor shall prohibit the said exhibitor to take part in the next exhibition.
Article 32 Where a sponsor fails to fulfill its obligation regarding the IPRs protection during an exhibition, the administrative department of exhibitions shall give a warning thereto and disapprove any application for holding any relevant exhibition again upon the circumstance in accordance with the law .
Chapter VII Supplementary Provisions
Article 33 Where any case hasn’t been concluded at the end of an exhibition, the relevant facts and evidence of the case may be confirmed by the exhibition sponsor. The IPRs administrative department at the locality of the exhibition shall, within 15 workdays, transfer it to the IPRs administrative department with jurisdiction for treatment according to law.
Article 34 The term “IPRs administrative department” as mentioned in the present Measures refers to the administrative departments for patent, trademark and copyright. The term “administrative department of exhibitions” as mentioned in the present measures refers to the department in charge of examination and approval or registration of exhibitions.
Source: www.ipr.gov.cn
Tags: Trademark, trademarks, ProtectionRelated Posts:
What Does CEPA Offer?
September 12, 2009
CEPA
■ Zero tariffs on 90% of Hong Kong exports to China
■ Faster/easier China market access for 18 service sectors
■ Lower entry thresholds for smaller players (capital/trading history
requirements)
■ 100% ownership of many China ventures
■ Manufacturers in China able to use Hong Kong services
■ Makes Hong Kong the easiest route into/out of China
WHO BENEFITS FROM CEPA?
Hong Kong-based service providers (in 18 sectors):
■ Company must be incorporated in Hong Kong
■ Doing business in Hong Kong for past 3-5 years
■ Liable for Hong Kong profits tax
■ Employing 50% of staff in Hong Kong
■ Any nationality
Manufacturers/distributors of goods (for 273 categories):
■ Goods must qualify as ‘made in Hong Kong’
■ Not necessary for company to be based in Hong Kong
■ To qualify, goods must be‘substantially transformed’ – 30% of
value must be added in Hong Kong (includes R&D, design costs)
CEPA – YOUR SPRINGBOARD TO CHINA
WHAT IS CEPA?
■ A free trade agreement between Hong Kong and mainland China
■ Effective from 1 January 2004
■ Preferential access to China’s market from Hong Kong
■ Significant China market liberalisation
■ Goes further than China’s WTO commitments CLOSER ECONOMIC PARTNERSHIP ARRANGEMENT HOW CAN OVERSEAS COMPANIES BENEFIT?
Service companies
■ Partner with, invest in, or buy into a Cepa-qualified firm in Hong Kong
Manufacturers or traders of goods
■ Partner with, or outsource to, a Hong Kong manufacturer
(no need for your company to have a base in Hong Kong)
HOW CAN COMPANIES APPLY?
■ Hong Kong-based service companies must apply for a Cepa certificate
■ Manufacturers must apply for a Cepa certificate for their products
Easy application procedure through Hong Kong’s Trade and Industry Department
MORE INFORMATION?
www.tid.gov.hk/cepa/eng – detailed information from Hong Kong’s Trade
and Industry Department
www.tdctrade.com/cepa – Hong Kong Trade Development Council’s Cepa
section
www.hktrader.net – e-newsletter with Cepa section for overseas companies
1HOW CEPA CAN HELP YOU
1 What is Cepa?
Cepa stands for Closer Economic Partnership Arrangement. It is a free
trade deal, operating from 1 January 2004, between Hong Kong and the
Chinese mainland. It is the first bilateral free trade deal signed by China.
2 What are the main provisions of Cepa?
Cepa is broadly divided into three sections:
Trade in goods
Any company (Hong Kong-based or from outside Hong Kong) can benefit
from zero tariffs on 273 categories of products exported from Hong Kong
into the Chinese mainland, as long as the products are classified as
‘Made in Hong Kong’.
Your company does not have to have an office in Hong Kong, but your
products must satisfy ‘Rules of Origin’ to classify as ‘Made in Hong Kong’.
Trade in services
Under Cepa provisions, the Chinese mainland has opened up its market to
Hong Kong-based service providers in 18 sectors.
Advertising, accountancy, audiovisual, banking, construction and real
estate, convention and exhibition services, distribution services, freight
forwarding, insurance, legal, logistics, management consultancy,
medical and dental, securities, storage and warehouse services,
telecommunications, tourism and transport.
Trade and investment facilitation
The main provisions relate to liberalising customs clearance, business
regulations and the standardisation of e-commerce.
23 How does Cepa add to Hong Kong’s position as Asia’s business centre?
Cepa offers preferential access to China’s markets, over and above
commitments made by China under WTO. Cepa adds to the long list of
reasons why international businesses choose Hong Kong as a base for
their China and Asia operations.
Three broad groups stand to benefit:
■ Companies already based in Hong Kong (of any nationality)
■ Overseas companies interested in developing their China business strategy
through Hong Kong
■ Chinese mainland enterprises that wish to use Hong Kong services to
streamline and expand their businesses overseas
Section 1
TRADE IN GOODS – HOW CEPA CAN HELP YOUR BUSINESS
4 What products are eligible for zero tariffs?
273 product categories have been selected to be tariff free from 1 January
2004. This covers 90 percent of Hong Kong products. The majority of
remaining products will be tariff free by 2006, at the latest.
For a full list, see www.tid.gov.hk/english/cepa
5 Do you have to have an office in Hong Kong for your products to qualify as
‘Made in Hong Kong’?
No. Cepa provisions that a company be based in Hong Kong for three to
five years; be liable to pay tax; and employ 50 percent of its workforce
locally, only applies to service companies.
For goods to qualify as ‘Made in Hong Kong’ they simply have to qualify
under the Cepa ‘Rules of Origin’.
36 Do your products have to be manufactured in Hong Kong to enjoy zero tariffs?
What are the Rules of Origin (ROO)?
Products must be classified as ‘Made in Hong Kong’ under Cepa ‘Rules of
Origin’ (ROOs). For goods to qualify as made in Hong Kong, they must
have been substantially transformed in Hong Kong.
Currently 273 product codes are covered by Cepa.
■ 187 of these will adopt Hong Kong’s existing origin rules (these include
textiles and clothing, jewellery, cosmetics, pharmaceutical products, and
plastic and paper articles).
■ 46 products (such as some chemical and metal products, some electronic
products and electronic components) will adopt a ‘Change in Tariff
Heading’ (CTH) approach. CTH is widely used by most WTO members.
■ The remaining 40 products (electrical and optical components, watches
and clocks) will adopt a 30% value added requirement. R&D and design
will be counted under this value adding requirement.
7 Will you need a Certificate of Origin to benefit from zero tariffs?
Yes. Hong Kong’s Trade and Industry Department has set up a new unit to
administer certification. Companies do not have to wait until 1 January
2004 to seek certification. Please click on www.tid.gov.hk for details.
8 Do the zero tariffs apply to taxes levied by the Chinese government?
Cepa only covers import tariffs. VAT and other domestic taxes in China
are not exempt.
49 Will Cepa help you to source products efficiently from the Chinese mainland?
Yes. Cepa opens up the Chinese mainland to more Hong Kong companies
working in the trade support industries.
In particular, Cepa looks set to further integerate the economies of
Hong Kong and the Pearl River Delta region of southern China.
The economy of the Pearl River Delta is dominated by manufacturing,
while Hong Kong excels in trade services, such as sourcing, financing,
logistics and transportation. The combination of these two regions (often
called the Greater Pearl River Delta) offers a compelling and competitive
way to do business.
10 If you want to sell products into China, how can Hong Kong and Cepa help?
Under Cepa, Hong Kong-based companies can set up wholly-owned
distribution ventures to manage the full process of getting your products to
retailers and consumers.
Working with a Hong Kong partner, you can find suitable markets, better
understand local consumers and distribute to all regions on the mainland.
Please note that your products will still be subject to mainland Chinese
import tariffs, unless they have Cepa certification.
511 What are the advantages of manufacturing in Hong Kong – and how can you satisfy the ‘Rules of Origin’?
Cepa establishes Hong Kong as a competitive manufacturing location for
high-value goods, especially those with strong design content, or valuable
trademarks. Hong Kong’s strict intellectual property legislation and strong
service sectors support the manufacture and distribution of high value
products.
Using Hong Kong’s free port system, raw materials or semi-made products
can be imported into Hong Kong tariff free. ‘Boutique’ factories in Hong
Kong can manage the specialised stages of the design, manufacturing
and IP protection of the product. Your products can then be exported tariff
free to China (i) for further mass production (ii) for China-wide distribution,
or (iii) exported to the rest of the world.
You can either invest in your own production lines, or license/outsource to
Hong Kong factories to satisfy the Rules of Origin.
Section 2
TRADE IN SERVICES ñ HOW CEPA CAN HELP YOUR BUSINESS
12 If you have a services company, can you take advantage of Cepa provisions to enter the China market?
Cepa provisions cover 18 service areas. You must also qualify as a
‘Hong Kong company’. To satisfy these criteria, your company must:
■ Be incorporated in Hong Kong for three to five years (depending on
the sector)
■ Be liable to pay profits tax
■ Employ at least 50% of staff in Hong Kong
Any company, regardless of nationality, which satisfies this criteria, can
benefit from Cepa provisions.
613 How will Cepa make it easier for you to access the China market?
The exact provisions vary according to the sector. Please see page 9
for an overview, or click on www.tid.gov.hk/english/cepa for a sector-by-sector breakdown. However, broadly speaking, Cepa helps in four key areas:
■ Earlier market entry – Under WTO commitments China is gradually making
it easier for overseas companies to set up. Cepa offers a one to five year
head start to Hong Kong-based companies.
■ Setting up wholly-owned companies – Currently overseas companies have
to partner with Chinese companies. In many cases Cepa allows for the
creation of wholly-owned companies.
■ Lower capital thresholds – Capital requirements to set up in China have
been reduced substantially opening up the field to smaller players.
■ Recognition of qualifications – Many Hong Kong professional qualifications
will be recognized in China, and access to sit China professional exams will
be broadened.
14 If you would like to take advantage of Cepa provisions, but you do not have an office in Hong Kong, what should you do?
If you do not qualify as a ‘Hong Kong company’ under the criteria set out
in Q12, you can partner with, invest in, or buy into, a Hong Kong-based
company that already qualifies. You may then enjoy the advantages offered
by Cepa.
7 General questions
15 How does Cepa differ from China’s WTO commitments?
Cepa provisions offer two key benefits over and above WTO commitments:
■ Earlier implementation – in most cases, Cepa advantages will be available
to Hong Kong-made products and Hong Kong-based service providers
one to five years ahead of WTO benefits.
■ Better benefits – For ‘Made in Hong Kong’ products, Cepa provisions offer
zero tariffs on 90 percent of goods from 1 January 2004, and will offer zero
tariff on all goods by 2006, at the latest. Even under full WTO commitments, tariffs will remain between five and 30 percent.
Cepa-eligible service companies (of any nationality), benefit from lower
capital and asset requirements, no global quota restrictions and being able
to set up wholly-owned ventures. WTO commitments have no timetable for
wholly-owned ventures in areas such as logistics and exhibition services.
16 What is the difference between a Free Trade Agreement and Cepa?
Normally FTAs are signed between two countries. Because of the ‘one
country, two systems’ between the Chinese mainland and Hong Kong,
a different name has been used. In other ways, Cepa is comparable to a FTA.
8
“Made in Hong Kong” products covered by Cepa
• Electrical and electronic products • Metal products • Chemical products • Pharmaceutical products • Plastic articles • Paper articles • Textiles and clothing • Cosmetics • Clocks andwatches • Jewellery
For more detail, check www.tid.gov.hk/english/cepaService sectors covered by Cepa NB. Any company that satisfies Cepa-eligibility can benefit, regardless of nationality.
Accounting: One year permits for Hong Kong companies to conduct auditing services on the mainland. Hong Kong-qualified accountants who have practised on the mainland will be treated as Mainland accountants.
Advertising: Firms from Hong Kong can establish wholly-owned advertising companies on the mainland.
Audiovisual: Hong Kong-produced Chinese language movies will be exempt from the 20 overseas film quota and can be distributed on the mainland. Co-produced movies will be treated as mainland films.
Banking: Asset requirement for banks to establish mainland branches is reduced from US$ 20 bn to US$ 6 bn.
Conventions: Hong Kong firms can set up wholly owned operations.
Construction and real estate: Hong Kong firms can set up wholly-owned operations.
Distribution (exc tobacco): Hong Kong firms providing distribution services, retailing or franchising can set up wholly-owned operations. Hong Kong car dealers can open up to 30 wholly-owned retail outlets.
Freight forwarding: Hong Kong firms can operate on a wholly-owned basis.
Insurance: Max limit of capital by a Hong Kong insurance firm in a mainland firm is 24.9 per cent. Hong Kong insurance agents can practice with mainland professional qualifications.
Legal: Hong Kong lawyers can work for mainland firms. Minimum requirements are waived for those operating in Shenzhen and Guangzhou and shortened to two months for other areas.
Logistics: Hong Kong companies can set up wholly-owned operations on the mainland.
Management/consultancy: Most companies can set up wholly-owned enterprises.
Medical and dental: Hong Kong doctors can work on the mainland for up to three years.
Hong Kong medical workers can sit exams to work on the mainland.
Securities: Hong Kong Exchanges and Clearing can set up a representative office in Beijing.
Storage/warehousing: Hong Kong companies can operate wholly-owned operations.
Telecommunications: Hong Kong companies can set up JV enterprises on the mainland.
No geographic restriction for JV enterprises formed by Hong Kong service suppliers and the mainland to provide value-added services.
Tourism: Hong Kong companies can run hotels/restaurants on a wholly-owned basis.
Transport: Hong Kong companies can operate on a wholly-owned basis.
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