New Laws in China to Impact Business, Trade from January 1, 2019

New laws in China impacting business and trade will come into effect on January 1, 2019. They range from tax reform to international tariff agreements.

Many of these developments were announced earlier in 2018 but were either implemented in phases or will come into force at the start of the new year.

To ensure your business stays compliant in 2019, this article lists out the most important regulatory changes that you should pay attention to.

Individual Income Tax (IIT) reform

China’s new individual income tax (IIT) law aims to ease the burden for low to mid-income earners while taking a tougher stance on foreign workers and high-income groups. It will take full effect January 1, 2019.

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The reform has been implemented in a staggered manner. Earlier, on October 1, 2018, new tax brackets and standard deduction amounts took effect.

From January 1, the remainder of the new tax law will come into force, and include: provisions on special additional deductions, consolidated categories of taxable income, and the ‘183-day-rule’ of residency.

The new IIT law has been the first step in transforming China’s tax system into a comprehensive and integrated one. This may pose a challenge to China’s current collection and management system.

Social insurance in China

Beginning January 1, China’s social insurance contributions will be solely levied by China’s tax bureau, instead of the HR bureau, according to the early released Reform Plan on the National and Local Taxation Collection and Management System (“Taxation Collection Reform Plan”).

The better-equipped tax bureau will be in charge of calculating, collecting, and checking companies’ social insurance contributions.

The aim is to build a more efficient and unified tax collection and management system to increase China’s capacity to enforce its social insurance regulations, including cracking down on tax evasion and underpayment.

This will bring a big change to China’s social security system. Employers in China need to review their social insurance processes to prepare for the shift.

e-Commerce law and cross-border e-commerce regulations

China’s new e-commerce law will be implemented on January 1 to improve the regulation of its booming e-commerce market and extend legal protection for consumers and brand owners.

Several changes will be introduced in the new law, such as defining three recognized types of e-commerce operators, strengthening IP protections, and regulating against unfair competition.

One of the key changes is the inclusion of non-traditional shopping channels (such as social media platforms, like WeChat) as places of e-commerce.

Cross-border e-commerce operators will be subject to the e-commerce law as well. At the same time, they need to comply with the other laws and regulations on the import and export supervision and management regarding their goods and industries.

Soil pollution law

The Law on the Prevention and Control of Soil Pollution, China’s first law addressing soil pollution prevention and control, will arm the government’s focus on cleaning up China’s environment once it comes into effect on January 1.

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New nationwide standards will be set for pollution risk control, while local governments can develop their own additional mandatory standards.

An environmental information platform will be established as well. Data and information collected from this platform will be shared with authorities to create a monitoring system.

These measures aim to fill legal loopholes and create a comprehensive liability system for preventing and cleaning up soil pollution.

Businesses will need to take additional steps to ensure compliance. At the same time, the campaign opens up new opportunities in the cleantech and environmental services sectors.

IP protection regulations

Numerous IP-related policies were issued over the past year.

Among them is the establishment of a new national-level court under the Supreme People’s Court (SPC), which will handle IP appeals across the country from January 1. The court will manage IP disputes in high-tech fields, including matters related to trademarks, patents, and trade secrets.

In addition, new regulations have been announced to describe some critical situations during IP litigation, under which companies can request timely conservatory measures from the government within 48 hours after submitting the application.

All accounting departments should note that starting from 2019, an enterprise will have to disclose in detail the accounting information of its IP assets, such as intangible assets, patent rights, trademark rights, and copyrights, as mandated by the Ministry of Finance and National Intellectual Property Administration.

Tariff cuts under China-Australia FTA

On January 1, China and Australia will launch their fifth round of tariff cuts since 2015, pursuant to the two countries’ bilateral free trade agreement.

All Chinese goods entering Australia will be exempt from customs duties and China will also cancel tariffs on a range of Australian products on display at the fair, including wine, seafood, and infant formula, among others, according to the announcement by the Ministry for Trade, Tourism and Investment of Australia at the 2018 China’s International Import Expo (CIIE).

Zero tariffs on Hong Kong goods

Additionally, per an agreement released by the Ministry of Commerce, Hong Kong-origin goods imported into mainland China from January 1 will fully enjoy zero tariffs through the enhanced arrangement for rules of origin.

In addition to the existing product-specific rules of origin, a general rule was introduced based on the calculation of the value added to the products in Hong Kong.

The move is part of the Guangdong-Hong Kong-Macau Greater Bay Area initiative to promote trade facilitation.

How to prepare your China business

Some of the forthcoming laws and regulations coming into effect on January 1 will only affect certain sectors, like e-commerce, while others will affect essentially all China-based businesses, like the IIT reform.

Businesses should prepare to immediately comply with the new laws once they take force. That being said, businesses should note that there is often a transitional period as local authorities determine how to interpret and enforce new regulations.

To mitigate risks of incompliance, businesses are advised to study the relevant laws and assess where there may be gaps with existing practices, while maintaining open contact with local authorities to stay up-to-date with on-the-ground policy implementation.

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