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94 Country starter pack Business practicalities in China China food safety law One of the biggest opportunities for Australians considering exporting goods to China is in the area of food and beverages. China’s food and beverage industry has grown annually by 30 per cent over the past five years, with an annual growth rate of 15 per cent for imported food products. These figures are expected to continue to climb as China’s consumption of imported food and beverages rises to meet the demand of the growing middle class. Consumers in China increasingly are looking for: • Confidence in food safety and ingredients’ integrity • Higher quality • Better nutritional value • Enhanced lifestyle through greater varieties of food and beverages • Modern packaging • Freshness • Convenience. Businesses wanting to import Australian food and beverages into China, need to meet the strict regulations of China’s Food Safety Law. The law includes stricter monitoring and supervision, tougher safety standards, the forced recall of substandard products and severe punishment for offenders. The law covers: • Production and trading of food and food additives • Packing materials, vessels, detergents and disinfectants for food and equipment used in food production • Food additives and food-related products used by food producers and traders • Safety management of food, food additives and foodrelated products. The Food Safety Law also covers all imported food products, which are subject to the national food safety standards of China. All foreign food distributors and producers that import food products into China are required to register with the state entry-exit inspection and quarantine authorities. Importers must record the foods imported and distributed in China and must retain these records for at least two years. Ingredients or components not registered in China must be registered as new-to-China components. Any food or food ingredient or component that has had an import history prior to the new Food Safety Law should be allowed entry even if there is no Chinese standard. The law requires all foreign food manufacturers to register with the General Administration of Quality Supervision Inspection and Quarantine of the People’s Republic of China (AQSIQ). On the spot accreditation by Chinese Government officials may also be required. Manufacturers of dairy products, particularly infant formula, meat and seafood are subject to even stricter accreditation for the registration process. Certification and Accreditation Administration of the People’s Republic of China (CNCA) publishes up-to-date lists of approved foreign manufacturers or facilities of dairy products, infant formula, meat and seafood. Decree 55 was issued by AQSIQ covering a wide range of products under the jurisdiction of the AQSIQ Food Safety Bureau and includes prescribed food commodities such as: • Meat and meat products • Aquatic products • Egg and egg products • Dairy products • Bee products • Other non-prescribed foods such as biscuits and beverages. This decree requires Australian exporters and agents, as well as Chinese importers, to complete an online registration form. While the detailed manuals contain step-by-step instructions on how to complete the registration process, it is currently only available in Mandarin . Exporters are encouraged to work closely with their importers to provide the necessary information.
Country starter pack Business practicalities in China 95 5.3 TAXATION China’s taxation system includes a wide range of imposts on businesses and individuals including income taxes (corporate income tax and individual income tax), turnover taxes (value added tax, business tax and consumption tax), taxes on property (land appreciation tax and real estate tax), as well as taxes such as stamp tax, customs duties, motor vehicle acquisition tax, vehicle and vessel tax, and urban construction and maintenance tax. This section will provide an overview of the primary taxes Australian enterprises need to consider when establishing a business in China. It is important that they seek professional advice from firms such as PwC to discuss the various taxes that may apply to their business and its specific situation. Not all applicable taxes are covered in this starter pack and the information that is provided should only be used as a guide. China’s laws and regulations, which underpin the nation’s tax system, are currently in a state of transition and discussion drafts looking at various aspects, including the Taxation Collection Administration Law (TCAL), and the VAT and Business Tax systems. Tax laws and policies are developed jointly by the regulatory bodies of the State Administration of Taxation (SAT) and the Ministry of Finance. The SAT is the body charged with collecting tax and enforcing compliance and is assisted by the state and local tax bureaus at the provincial level and below. Applicable tax laws and policies will vary depending on the city and province in which a business is operating as there can be additional local surcharges that may apply based on provincial tax regulations. Overview of China's taxes for businesses Corporate income tax rate, branch 25 per cent tax rate and capital gains tax rate Taxable income Worldwide Double taxation relief Yes Tax consolidation No Transfer policy rules Yes Thin capital rules Yes Tax year Calendar year Advance payment of tax Yes Return due date Within five months of the end of the tax year Withholding tax for non-resident 10 per cent enterprise Social security contributions Up to about 40 per cent of employee’s base salary Business tax 3 to 20 per cent VAT 3 to 17 per cent VAT grouping No Consumption tax 1 to 56 per cent Corporate income tax The Corporate Income Tax (CIT) Law: This took effect on January 1, 2008, consolidating into a single regime two separate income tax regimes, one applied to domestically-invested enterprises and the other set for foreign-invested enterprises (FIEs) and foreign enterprises (FEs). CIT applies to what is officially called a tax resident enterprise (TRE) of China. This is deemed to be a company that is established in China or a foreign company that has its effective management located in China. Effective management is defined as substantial and overall management and control encompassing business and manufacturing operations, financial, human resources, and property aspects of the entity. The standard CIT rate is 25 per cent on the global income of a resident enterprise. Non-resident enterprises are also subject to tax on income made in China and income that is connected with an establishment in China. Lower tax rates are available for companies qualifying as state encouraged enterprises, including thin-profit enterprises (20 per cent) and new high-technology enterprises (15 per cent). A company’s taxable income is that amount remaining out of gross income after the deduction of allowable expenses and losses. Profits, passive incomes including interest, rents and royalties, capital gains and received dividends from a foreign entity are normally considered to be part of taxable income. Corporate tax is calculated in renminbi (RMB), with foreign currency income converted into RMB for tax purposes. Exchange rate gains or losses are generally taxable or deductible regardless of whether they were realised or unrealised, unless otherwise prescribed by the tax regulations. Thin capitalisation rule: This was introduced to disallow interest expense arising from excessive related party loans. The safe harbour debt-to-equity ratio for enterprises in the financial industry is 5:1 and for enterprises in other industries, 2:1. However, if there is sufficient evidence to prove that the financing arrangement was executed at arm’s length, these interests may still be fully deductible even if the ratios are exceeded. Withholding income tax (WHT): This is applicable to non-resident enterprises at the rate of 10 per cent on dividends, interest, rental income, royalties and other forms of passive income such as capital gains from the sale or transfer of real estate or property, land use rights and shares in a Chinese company. WHT rates may be lower than 10 per cent or the tax exempted under a treaty. Tax for non-tax resident enterprises: Under the double tax treaty, if the Permanent Establishment (PE) is constituted, the profit attributable to the PE shall be subject to CIT. The Chinese tax authorities may assess a taxable income if the enterprise cannot submit complete
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