Effective as of October 15,2002, the State Taxation Bureau has introduced new regulations relating to the collection and administration of corporate taxation.

The major changes in these regulations include:

• 延期申报处理不同以往: Procedures changed on taxation filing delay
  Even if a permit for delayed taxation payment is granted, the tax payer should pay the same amount as paid in the previous tax payment period with the remaining tax payment to be made within the extended payment period.
  
  
• 延期缴纳税款难度加大: More difficult to obtain delay permits for taxation filing
  The permit should be approved by the Taxation Bureau at Provincial level. (formerly only by County level government)
  
  
• 滞纳金的征收比重发生变化: Late payment fee charge rate changed
  The rate of late payment fee has been changed form 0.2% per day (equivalent to 73% per year) to 0.05% per day (more in line with current market rates).
  
  
• 退税可以要求付息: Interest on tax refund delay
  The tax payer has the right to request a tax refund (with interest) if any overpayment is found to be made within three years. The interest rate would be the same as the current interest rate on bank saving accounts.
  
  
• 企业合并、分立要事先告知 Mergers or divestitures
  Any Merger or Divestiture activity should be reported to the tax authorities in advance. When the tax payer intents to merge or divest any assets, liquidation procedures and taxation payments should be finalised and expressed to the tax authority, otherwise tax liabilities will be borne by the new enterprise.
  
  
• 核定征税范围扩大 : The tax authorities' scope has been widened
  The taxation authorities have greater powers to identify tax payers and request information.
  
  
• 银行帐号纳入税务管理范围: Bank accounts
  The enterprise tax payer should notify to the tax authorities of all bank accounts opened. Furthermore, the enterprise's Tax Registration Certificate should be presented to the bank when the tax payer opens any bank account.
  
  
• 行政处罚更严厉: Punishments
  Taxation authorities have more powers to apply harsher punishments.
  
  
• 不办税务登记将被吊销营业执照: Greater powers
  A company's Business License may be withdrawn if they do not complete the required tax registration procedures.
  
  
• 纳税申报方式有了多种选择: Tax filing
  Tax payer now has a number of methods for filing taxation including hand delivery, mailing, fax, internet, telex, etc.)
  
  
• 新《征管法》明确消费者应索要发票: Business Taxation
  The regulation emphasises that consumers should request invoices (fa piao) for goods and services purchased.

Measures to strengthen collection of Individual Income Tax in Beijing

The Beijing Municipal Local Taxation Bureau has introduced new measures aimed at strengthening collection of Individual Income Tax collection from Key Tax Payers ("KTP").

According to the regulations, Key Tax Payers (KTP) include individuals whose yearly income is greater than RMB 100,000, and also includes individuals who are:

1. The legal representatives, General Managers, or principals of the units responsible for withholding IIT.

2. Individuals whose monthly incomes is generated from more than two places, and individuals not responsible for any withholding IIT.

3. Individuals who have overseas (Including H.K., Macao, and Taiwan) incomes.

4. Expatriates bearing IIT in line with tax regulations.

5. Those who should declare IIT by themselves according to the ratification from the taxation authorities.

The major changes in the regulations include the following :-

Tax filing:

1. The tax bureau shall issue the Taxation Proceeding Notice to the KTP or his/her employer. In such cases a KTP must file the Individual Basic Information Form through the IIT Management Information System of Beijing Local Tax Bureau (www.tax861.gov.cn) or other relevant procedures so as to set up the filing and registration for the KPT.

2. Individual Basic Information Form of the KPT working for an enterprise should be filed by the enterprise. KPT should file his/ her own Individual Basic Information Form if he/she are not working for any enterprises. The KPTs mentioned in the above individual list from No.2-5 should file the Individual Basic Information Form themselves and the employer should also file the Individual Basic Information Form.

3. KPTs and the withholding units should maintain copies of the Individual Basic Information Form. Any changes in the basic information should be revised through IIT Management Information System within 30 days.

4. The tax authority will review the Individual Basic Information Form filled by the KPTs and their employing enterprises, and has the right to request supporting materials.

Declaration and Tax Payment:

1. When declaring IIT, Withholding agents (employers) should file and declare Withholding Tax Details Report for each KTP through the IIT Management Information System in addition to filing of the Withholding IIT Report to the taxation authority directly (hard copy).

2. KTPs listed above (from 2-5), regardless of whether the withholding agents have paid the individual income tax as required, should declare the IIT through the IIT Management Information System before 7th of every next month, including filling the KTP IIT Report.

If the KTP have paid any IIT to other countries or districts' taxation authorities, the relevant tax payment certificates should be provided to deduct the IIT liability accordingly.

3. IIT payment may be postponed when the KTP encounters a force majeure situation. In these circumstances the KTP must apply for extension to the relevant taxation authorities.

4. Punishment: If the KTP and the relevant withholding units do not report the documents (Individual Basic Information Form, KTP IIT Statement, and Withholding IIT Details Statement) to the taxation authority as required, the tax authority may punish the KTP or the withholding units fine a minimum of ￥2,000 up to ￥10,000.

If the withholding agent or tax payer refuses to declare IIT or files a false tax declaration, the responsible party is liable to pay the due IIT, a late fee, and a fine of more than 50% and less than 5 times of the IIT due.

5. The Taxation authority will maintain the privacy of tax payer's IIT information.

6. KTP may entrust a tax agent to file Individual Basic Information Forms, declare and pay tax or withholding tax on their behalf.

These regulation will come into force as of November 1st, 2002.

In light of recent crackdowns on Individual Income Taxation in Beijing, these changes are of crucial importance to all tax payers.

Ignorance is not an excuse in front of the tax authorities, and serious penalties are applicable for underpayment or false reporting.

Current Account - Adjustments to FOREX accounts for Chinese-funded entities and FIE

Notice on Issues Related to Making Further Adjustments to the Policies for Administration of Current Account Foreign Exchange Accounts

Issue Date: September 9, 2002
Issuing Authority: State Administration of Foreign Exchange (SAFE)
Effective Date: October 15, 2002.

Summary: To further boost foreign trade in China and reduce operation costs, the Notice unifies the legal regime for the current account of foreign exchange accounts of both the Chinese funded enterprises and foreign invested enterprises.

Under the unified system, the current account foreign exchange settlement account and the special-purpose foreign exchange account will be unified into one current account - foreign exchange account. The Notice also sets a cap on the current account foreign exchange accounts.

In principle, the cap on the current account foreign exchange account of a "domestic" company (including foreign invested companies) is up to 20% of the domestic company's current account foreign exchange receipt in the previous year.

When a domestic company that has no current account foreign exchange receipt in the previous year opens a current account foreign exchange account, the initial cap should not exceed an amount equivalent to US$100,000. The local SAFE authorities may adjust the caps within their jurisdiction according to the granted cap range that SAFE sets forth for the regions.

The current account foreign exchange settlement accounts and special-purpose foreign exchange accounts opened before the Notice may continue to be used according to their original cap. However, domestic companies must go through the procedures with the local SAFE authorities for combining of foreign exchange accounts.

(22 November 2002) Six more foreign banks have gained government approval to offer foreign currency services to domestic residents in Beijing.

The six are Citibank, Chicago-based Bank One, Dresdner Bank, Austria’s Raiffeisen Zentralbank Osterreich, Hong Kong’s Nanyang Commercial Bank—which is a subsidiary of Bank of China (Hong Kong) Ltd.—and the Development Bank of Singapore, according to the People’s Bank of China (PBOC).

The Hong Kong & Shanghai Banking Corp. was the first to be approved for such business in both Beijing and Shanghai.

The central bank may allow the foreign banks to charge fees for their services in accordance with international practices, Wednesday’s Beijing Chenbao (Beijing Morning Post). Currently few services by Chinese banks are fee-based.

PBOC also announced this week that foreign banks would be allowed to offer Chinese currency services in the cities of Guangzhou, Zhuhai (Guangdong), Qingdao, Nanjing and Wuhan starting Dec. 1.

Foreign banks can apply to conduct yuan business in four cities—Shanghai, Shenzhen, Tianjin and Dalian.

By the end of September, 181 overseas banks had set up operations in China.

(source: ChinaOnline, November 25, 2002)

China's performance industry is undergoing a series of changes. For one, it will thoroughly eliminate restrictions on domestic-capital ownership and grant fair treatment to organizers.

Moreover, it will introduce contract and agent systems and regulate and develop the industry to enrich people's cultural life, Xinhuashe (Xinhua News Agency) learned last week from the working conference on the administration of the national cultural market held by the Ministry of Culture.

China has made various adjustments to its policy on commercial performances, as seen in the ministry's recently revised and published rules.

The rules will be implemented from Oct. 1 and cover on-stage performance activities such as music, dramas, dances, acrobatics, magic, circuses, folk arts, puppet shows and fashion shows.

(Source: ChinaOnline, October 25, 2002)

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