China (PRC) Legal News
International Transactions – China Law Section
China Bulletin
The China Bulletin is a monthly publication on law in China for friends of Ishimaru & Associates and is intended to highlight legal developments important to U.S companies doing business in China. The information contained herein is not offered as advice on any particular matter and should not be taken as such. Our provision of this information does not create an attorney-client relationship.
We provide cost-efficient same time-zone support in the United States and on the ground through correspondent firms in China.
A U.S. investor with no residence in China that sells shares of a Cayman Islands company (which in turn holds shares in a Chinese subsidiary) may be subject to Chinese Enterprise Income Tax (EIT) of 10% on its gain. Under Notice 698 (Guo Shui Han [ 2009] No. 698), the Cayman Islands company can be disregarded or looked through if its organizational form is considered abusive and without a reasonable commercial purpose. If it is
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The pilot Value-Added Tax (VAT) program, first implemented in Shanghai (see Jan-Feb 2012 China Bulletin), is now a proven success. It was extended to ten other cities and provinces in 2012 (see July 2012 China Bulletin) that together account for over half of China’s economic output and tax revenue. General VAT tax-payers in the pilot areas have experienced
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The State Administration of Taxation (SAT) issued Notice 601 (Guo Shui Han [2009] No. 601) listing factors that the tax authorities should consider in determining whether an offshore party (not resident in China for tax purposes) receiving dividends, interest, royalties and other passive income from China qualifies as the beneficial owner of that income under China’s tax treaties. In June, 2012, SAT issued Announcement
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In November, the State Intellectual Property Office released the Draft Service Invention Regulations (reviewed in the November-December China Bulletin). Of particular concern in the regulations is an expansion of the scope of service inventions to know-how, requiring employers to track inventions and inventors themselves post-employment and potentially across generations. Several provision in the regulations also introduce potential new claims by
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The Employment Contract Law (ECL) was revised on December 28, 2012, with effect from July 1, 2013. It restricts employers’ use of secondees, a widespread practice in China, by 1) clarifying that “temporary” means no more than six months, 2) limiting “substitute” secondments to periods of time when another employee is unable to work or is on leave, and 3) defining “auxiliary”
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According to the 2012 China Business Environment Survey released by the US-China Business Council in October, 2012, the top challenge faced by its members operating in China is talent recruitment and retention. The survey noted that demand for qualified employees, particularly skilled technical and managerial employees, is often greater than supply. Labor costs are the rising cost of most concern,
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A recent Interpretation issued by the Supreme People’s Court (SPC) clarified when an employer must give an employee credit for prior years of service with a prior employer, compensation for post-employment non-competes, oral modification of labor contracts, and notification to the labor union of a labor contract termination. The final version did not include several provisions in an earlier, draft version that were especially challenging, including non-compete payments of 100%
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Amendments to the Civil Procedure Law (see September China Bulletin) that came into effect on January 1, 2013, provide that a court can grant preliminary injunctive relief if a party’s actions may make enforcement of a final judgement difficult or cause significant harm. This development is notable to employers and employees because Chinese jurisprudence did not traditionally provide for preliminary injunctions,
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The Amendment (VIII) to the Criminal Law of the PRC, effective May 1, 2011, added the crime of evading payment of a relatively large amount of wages as Article 276A of the Criminal Law. The crime includes evading payment by transferring property or hiding, or refusing to pay, although capable, after being ordered to do so by a relevant authority.
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The parties to a contract with a foreign element can generally agree to interpret their contract according to the law of a non-Chinese jurisdiction, such as California. However, the Supreme People’s Court’s recent Interpretation of the Law on Choice of Law in Foreign-Related Civil Relationships, effective January 7, 2013, lists several kinds of relationships where the use of PRC law is mandatory, including employment relationships. This means
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