This issue covers legislation published in April 2018
> China to lift restrictions on foreign investment
in the automotive manufacturing sector
> State council publishes the Working Measures
for Outbound Transfer of Intellectual Property
Rights (for trial implementation)
> New regulations on the adjustments of value
added tax policies
> Announcement on safekeeping asset loss
materials for enterprise income tax purposes
China to lift restrictions on foreign investment in the
automotive manufacturing sector (
Following President Xi's speech of April 10, 2018, on the 2018 Boao Forum for Asia, which
announced the lifting of restrictions on foreign investment in the manufacturing sector, on
April 17, 2018, the National Development and Reform Commission ("NDRC") published its
answers to questions on the new negative list of foreign manufacturing industry on its official
website (the "Answers").
In the Answers, NDRC explained that the new negative list for foreign investments is made up
of two lists, one for the whole country and one for the pilot free trade zones, which will
include not only the announced opening-up for financial and other sectors in 2018, but also
those for the next few years, including a transition period for the relevant sectors.
NDRC also introduced detailed step-by-step policies regarding the opening-up of foreign
investment in the automotive manufacturing sector, which is as follows:
> in 2018, the restriction on foreign shareholding ratio will be lifted for those
manufacturing special vehicles and new energy vehicles;
> in 2020, this restriction will be lifted for commercial vehicle manufacturing;
> in 2022, the restriction will be lifted for those manufacturing passenger vehicles,
and the limit to two JVs will be removed; and
> after this five-year transition period, the Chinese car manufacturing industry will
be opened up in full.
In 2018, the restriction on foreign shareholding ratio in the shipping sector will cover design,
manufacturing, repair and maintenance. For aircraft manufacturing, the restriction on
foreign shareholding ratio will include aircraft types, including trunk aircraft, regional aircraft,
general-purpose aircraft, helicopter, drone and aerostat.
Currently, no wholly foreign-owned enterprise is allowed to establish itself in the above
sectors, and the foreign shareholding ratio JVs cannot be more than 50%. Also, only two JVs
are allowed by one foreign investor for each vehicle type. If a foreign investor is relatively
controlled by another foreign investor, they will be considered one.
In November 2017, during the visit of US President Trump to China, it was agreed that the
pilot opening up of foreign shareholding ratio in special and new energy vehicle
manufacturing would be carried out in the pilot free trade zones by June 2018. So far, the
Answers are the only official source of this liberalization.
Legal flash Shanghai office
According to the Opinions on Optimizing the Administration of Automobile Investment
Projects jointly issued by NDRC and the Ministry of Industry and Information Technology on
June 4, 2017, no new establishment of enterprises manufacturing conventional fuel-run
vehicles will be approved, and the limitation on the number of JVs for whole vehicle
manufacturers only applies to conventional fuel-run vehicle manufacturers. Therefore,
except for new-energy vehicle manufacturing, foreign carmakers can no longer become
wholly foreign-owned through greenfield investment in China. Only acquisition will be
allowed. Carmakers that only manufacture pure electric vehicles or other new energy
vehicles will be the first to benefit from the new negative list.
We will continue to monitor any new development and the issuing of the new negative list on
Date of issue, April 17, 2018
State council publishes the Working Measures for
Outbound Transfer of Intellectual Property Rights (for trial
Recently, the State Council published on its website the Working Measures for Outbound
Transfer of Intellectual Property Rights (for trial implementation) ("IP Rs Measures"), which
took effect on March 18, 2018. These measure aim to examine whether the outbound
transfer of IP Rs will have an impact on national security or on the innovative and
development capacity of key technologies in important areas in China.
The applicable scope of the IP Rs Measures, which are subject to examination under the IPR
Measures, includes patent rights, integrated circuit layout design rights, computer software
copyright, and rights to new plant varieties. IPR Measures also apply to the following
> technology export of restricted technologies under the catalogue of prohibited and
restricted technologies to be exported;
> IP Rs outbound transfer during the merger and acquisition of foreign investors in
domestic enterprises ("M&A projects"); and
> application of IP Rs.
Outbound transfer refers to domestic enterprises, units, and individuals transferring their
IP Rs in China to foreign enterprises, individuals or other organizations, including:
Legal flash Shanghai office
> changing the owners;
> changing the actual controllers of the IP Rs; and
> exclusive license of the IPRs.
For technology exports, the competent commercial department accepting the application
for exportation of restricted technology will forward the materials to the local authority,
depending on the type of IP Rs, e.g., the local IP Rs bureau (for patent and integrated circuit
layout design) and the local science and technology bureau (for computer software). The
latter will issue written opinions, and the commercial department will examine them and
make its decision.
For lPRs outbound transfer during M&A projects, the competent authority for security
review of M&A projects will forward the materials to the state-level authorities depending on
the type of lPRs and seek their opinion, which the security review department will examine
and make its decision.
However, if the outbound transfer of lPRs will have an impact on national defense security, it
will not be subject to the lPRs Measures.
Date of issue: March 18, 2018. Effective date: March 18, 2018
New regulations on the adjustments of value-added tax
Following the announcement (in March) of several major adjustments on value-added tax
("VAT") policies by the State Council, on April 4, 2018, the Ministry of Finance ("MOF") and
the State Administration ofTaxation ("SAT") jointly released Cai Shui  no. 32 ("Circular
32") and Cai Shui  no. 33 ("Circular 33") to legalize some of the announced policies,
effective May 1, 2018.
Circular 32 focuses on the adjustment to VAT rates. VAT taxable activities that were
originally subject to VAT rates at 17% and 11% were adjusted to 16% and 10% respectively,
for sales of goods, provision of processing, repair and maintenance services, movable
asset leasing services and import of goods, the VAT rate was adjusted from 17% to 16%;
Legal flash Shanghai office
for provision of transportation, postal, basic telecommunication, construction, real
estate leasing services, transfer of real estate and land use rights, the VAT rate is adjusted
from 11% to 10%;
for purchase of agricultural goods, the VAT deduction rate is adjusted from 11% to 10%;
export refund rates of 17% and 11% are adjusted to 16% and 10% respectively.
The applicable rate (old or new) depends on when the VAT liability occurs for the relevant
taxable activities, i.e., whether the VAT liability occurs before or after May 1, 2018. Therefore,
when the VAT liability for a transaction occurs before May 1, 2018, even
invoice is issued after that date, the old rate applies to the transaction.
Circular 33 establishes that the criterion for VAT small-scaled taxpayers is increased to a
uniform standard of annual turnover of no more than RMB 5 million. The registered VAT
general taxpayers that do not meet this criterion can re-register as VAT smal l -scale taxpayers
before December 31, 2018, and start declaring VAT as sma l l-scale taxpayers in the month
In the meantime, their un-deducted input VAT will need to be transferred out to a "tax
payable - input VAT pending for deduction" account, which will be used as an adjustment
account for the transactions that take place when they are VAT general taxpayers and need
adjustments because of sales discounts, returns or tax inspection after re-registration.
Date of issue: April 4, 2018. Effective date: May 1. 2018
Announcement on safekeeping asset loss materials for
enterprise income tax purposes (
To promote the further simplification of enterprise income tax ("EIT") declaration materials
and post-monitoring administration. on April 10, 2018, the SAT released Announcement
 no.15 to relieve taxpayers' obligation to file asset loss materials during annual EIT
declaration. Instead, taxpayers only need to fill in the EIT annual declaration form with asset
loss, safekeeping the complete materials for future reference.
This policy will apply to the 2017 annual EIT declaration and onwards.
Date of issue: April 10. 2018. Effective date: January l, 2017
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