News

China Focus – June 2017

CHINA’S NEW FOREIGN WORK VISA SYSTEM: WHAT ARE THE IMPLICATIONS?

Employers and international employees in China are getting to grips with a new policy affecting the foreign work visa system, which was brought into force nationwide on 1 April 2017 and affects all companies based in the People’s Republic of China (PRC) that intend to sponsor foreign employees and all foreigners employed on the mainland.

The policy, which was piloted in a few cities – including Beijing and Shanghai – from last October, was promoted as part of a drive to attract top international talent to China by increasing the quantity and quality of successful applicants for foreign work visas. However, it also serves to increase PRC government control over the application process and may make it more difficult for many foreigners to obtain work visas. Consequently there may be a significant gulf between the stated purpose and the practical outcome.

The new policy has two main elements:

  1. Changes to the application process
  • Introduction of ‘Two-in-One Licence’ regime – the previous ‘Permit for Foreign Experts Working in China’ and ‘Employment Licence for Foreigners’ have been merged into one document known as the ‘Notification Letter of Foreigner’s Work Permit in the PRC’; and the previous ‘Foreigner Expert’ and ‘Alien Employment’ permits (referred to as ‘R’ and ‘Z’ visas respectively) have been merged into a single ‘Foreigner Work Permit Card’, which will have a unique ID number that does not change regardless of permit renewal or change of employer.
  • Previously the two permits were each administered by a separate bureau applying different systems, standards and criteria. The State Administration of Foreign Experts Affairs (SAFEA) issued the Foreign Expert Licence and Foreign Expert Certificate to R-visa applicants, while the Human Resources and Social Security Bureau (HRSS) issued the Employment Licence and Alien Employment Permit to Z-visa applicants. From 1 April, SAFEA is solely responsible for processing all foreign work visa applications.
  • Online application – Under the new system, all applications will be logged and processed digitally. Employers are required to register online and request an account for processing foreign employees’ work permit applications. The employer and foreign applicant can complete the application and submit necessary supporting documents electronically.
  • Simplification of application materials – Application materials required for submission are reduced by almost half. Submissions like personal CVs and application letters are no longer required. However significant new requirements have been introduced, including verification of past employment, education and professional qualifications.
  1. Tiered classification of Foreign workers

SAFEA has adopted a points-based, three-tiered classification system as the primary method to evaluate which candidates qualify for the new work permit. This will operate according to the principle of “encouraging the high-end, controlling the average and restricting the low-end”.

The classification system divides candidates into three categories: A (above 85 points) for high level talent, B (85 – 60) for professional personnel, and C (less than 60) for non-technical or service workers hired on a temporary or seasonal basis. Various criteria will be rated and used to generate a score for each foreign applicant, such as salary, educational background, Chinese language fluency, experience, and length of service.

  • Tier A – highly qualified talent (外国高端人才): a Visa score above 85; or automatically granted to international award recipients, Fortune Global 500 company senior managers or technicians, intellectual property holders of high profile companies, and post-doctoral degree holders under 40 years-old
  • Tier B – professional talent in line with labour market demand (外国专业人才): a Visa score of 60-85, or automatically granted to those who have attained a graduate degree at a top 100 foreign university
  • Tier C – unskilled workers (外国普通人员或附合国内劳动市场须求的外国人): a Visa score below 60, or foreigners who are non-technical or service workers hired on a temporary/seasonal basis

Tier A applicants are eligible for service through a ‘green channel’, which offers a pre-entry visa, paperless verification, expedited approval and other facilitation treatment.

The maximum validity of a Foreigner Work Permit Card is five years, but in practice first-time applicants are more likely to receive a one-year permit and then renewals for a multi-year work permit.

In January, the Ministry of Human Researches and Social Security (MOHRSS) announced a policy to make foreign post-graduates eligible for a Z-Visa immediately after graduation. It requires students to have obtained a master’s degree or above, with a satisfactory grade, at a Chinese university or any top 100 foreign university.

Implications

The new policy will benefit businesses hoping to employ exceptional professional and entry-level foreign talent. Tier A applicants should experience no difficulties in obtaining a visa. Significantly, the rule requiring foreigners to have two-years’ work experience and a bachelor’s degree no longer strictly applies. Provided applicants have sufficient points or an automatic qualifying status they can apply.

However, while the new policy does make the foreign visa application process simpler, it does not introduce any practical measures to make China a more attractive destination for foreigners and will enable the government to exert much greater controls on the number of foreigners who will be able to obtain work visas.

Further, businesses that are reliant on employing unskilled or middle-skilled foreigners on the mainland may have to revise their business model because Tier B and particularly Tier C foreigners will find it even more difficult to obtain Visas.

Recommended actions

To minimise disruptions further down the line, companies should immediately register to process foreign employees via the online system. If you are unsure as to how employees will be categorised, companies should calculate employees’ points according to the chart below and immediately apply for visas for those in Tier B or C.

Policies concerning foreign employment Visas change regularly in China. Companies should ensure they keep abreast of policy changes.  If you would like to keep up to date with legal developments in employment visa’s we invite you to follow KWM China – Client Alerts: http://www.kwm.com/en/cn/knowledge 

The table below sets out the criteria and the number of points awarded towards an applicant’s visa score:

Category Criteria Points
Visa score above 85 points
An industry leader in his/her field
Automatic Visa Qualification A high-level position in a listed sector, including, but not limited to, technology and education. N/A
Selected by the government’s Recruitment Program of Global Experts
Recognized by the government as an “innovative entrepreneur” or as an “outstanding young talent”
Annual Salary ≥ 450,000 20
350,000-450,000rmb 17
250,000-350,000rmb 14
150,000-250,000rmb 11
70,000-150,000rmp 8
50,000-70,000rmb 5
<50,000rmb 0
Highest level of Education Doctorate degree 20
Master’s degree 15
Bachelor’s degree 10
Quality of Education Graduated from a global top 100 University 5
Length of Relevant Work Experience >2 years 1 point for each year (max 15 points)
2 years 5
<2 years 0
Quality of Work Experience Relevant experience in a global top 100 company. 5
Employment Period per Annum More than 9 months 15
6-9 months 10
3-6 months 5
Less than 3 months 0
Employment Location China 10
Mandarin Language Skills Bachelor’s degree in Chinese or related program 10
HSK 5 10
HSK 4 8
HSK 3 6
HSK 2 4
HSK 1 2
Age 18-25 years 10
26-45 years 15
46-55 years 10
56-60 years 5
>60 years 0
Special Criteria, as set by Provincial Governments Varies by region. Refers to a shortage in talent in socio-economic development. 0-10

 

This article was written by David Hong, who is Foreign Legal Counsel at King & Wood Mallesons. David has significant experience in assisting domestic and international clients with their regulatory and legal needs.

 

CROSSBORDER E-COMMERCE AND THE POSITIVE LISTS 

China’s cross-border e-commerce (CBEC) market has grown at breakneck speed in recent years. The market (including retail and B2B) reached RMB 6.3 trillion in 2016, more than twice that of 2013. At the same time, regulations affecting the market have gone through a number of drastic changes, the most important to date being Circular on Taxation Policy on Cross-Border E-Commerce Retail Importation (Circular Cai Guan Shui [2016] No. 18, or ‘Circular 18), which entered into force as of 8 April 2016.

Under Circular 18, new taxes are to be levied on goods imported under the CBEC programme and the regime was to change from a previous negative list to a ‘Positive List’ of products eligible for CBEC. Within 10 days, two positive lists (‘Positive List I’ and Positive List II’) were issued by the tax, customs and quality supervision authorities under Circular 18’s framework.

The Positive List – jointly released by the Ministry of Finance (MOF) and ten other ministries and government bodies – includes tariff codes and product names of permitted CBEC categories encompassing almost 1,300 commodity categories in total. Most consumer products, from food and beverages to cosmetics and electronic appliances, are included.

However the Ministry of Commerce announced in late 2016 that it was extending the transition period until the end of 2017. Some commentators believe that there may be a further postponement but the reality is that nobody knows for certain what is going to happen. Despite this, ecommerce brands need to be thinking about the potential impact of these changes on their business.

If a company has already established operations and is selling through cross-border e-commerce platforms:

  • Stay the course for the next six months (if possible)
  • Develop a contingency plan in the event that the Positive List takes effect as scheduled, which can include registering your products as required by Chinese regulations, or making changes to your supply chain.

If you are considering entry into China and your products are potentially going to be affected by the Positive List:

  • Wait and see what happens. The investment is significant and it will take a few months to build traffic and begin realising sales. If you’re lucky you’ll get get two to three months of sales at best, which won’t be worth it.
  • Spend the time you have to develop a comprehensive strategy for market entry; one contingency based on the positive list coming into effect and another based on the Positive List being delayed.

Unfortunately, there is no certainty. The positive list has the potential to be highly disruptive to companies and brands that are not prepared. Sovereign can assist you by helping you understand this situation and help develop your strategy and contingency.

 

VAT REFORMS ON THE WAY – MORE DETAILS ARE REQUIRED

China’s State Administration of Taxation (SAT) has released new requirements for collecting VAT Fapiao (‘Fapiao’ is a Chinese tax invoice). The measure will change the type of information that taxpayers need to provide when obtaining a general VAT fapiao and is designed to put an end to various ‘grey practices’ by making it more difficult for taxpayers to falsify VAT fapiao.

Under the current system, taxpayers are only required to supply their company’s full listed name in Chinese in order for suppliers to issue a valid fapiao. When the new law comes into effect on 1 July, the following items will be required when requesting fapiao:

General VAT Fapiao

(Type of Fapio most commonly collected)

Special VAT Fapiao
Company’s Full Chinese name as detailed on the business licence Correct Buyers full information on the upper left side, including:

·         Chinese company name as detailed on the business licence;

·         Tax Identification Code or unified Social Credit Code;

·         Registered address;

·         Phone number,

·         Bank name and account number

Tax Identification Code or unified Social Credit Code Fapiao passcode printed within the correct field
Fapiao item needs to correspond with the actual transaction Clearly printed commodity and service tax breakdown
Special Fapiao chop from issuer ·                      Fapiao item needs to correspond with the actual transaction

·                      Special Fapiao chop from issuer

 

Fapiao issued without the above information cannot be used as a means to deduct from corporate income tax (CIT) or VAT. Issuers of a Fapaio will be required to link their service systems to SAT’s VAT control system. As a result, all fapiao issued will only be valid if the data is similar in both systems.

Reasons for the change

The new law introduces more stringent rules relating to the ‘nature of expenditure’ specified on fapiao, in order to combat fraud in respect of expenses. The Law stipulates that fapiao issuers are now required to specify the actual purpose of the expenditure, and not just list what has been requested by customers. Service providers will now need to specify the purpose of the product when issuing VAT fapiao, rather than asking the customer for their input on the nature of the fapiao.

Taxpayers, in turn, will need to ensure that they match the specific purpose of the VAT fapiao for the expense they claim. For example, when a taxpayer wants to claim accommodation expenses, he or she will need to use a fapaio issued specifically for accommodation, rather than using fapiao issued for other purposes, such as meal expenses.

Implications

More care will need to be taken when requesting fapiao for the purposes of business expenses. You may want to consider having a card with the relevant details available for individuals, such as sales staff, who frequently request fapiao. Employees will also need to provide the correct Fapiao for a related expense; gone are the days of providing restaurant fapiao to be used to cover housing expenses.

For now, the most difficult aspect of the new law is becoming accustomed to the additional administrative burden. For some companies, this may be too difficult due to staffing constraints. It may be that outsourcing your accounting and payroll services to a company such as Sovereign would be a sensible option.

Contact us for more information.

Sovereign China provides a suite of services designed to lead foreign investors through the market entry process and stay with them to develop long-term success in China. From helping you understand the market and developing a market entry strategy to establishing your operations and providing back office and compliance support services, we’re there for you – from planning through to execution.

Contact Sovereign China office


Share this story


Follow us

Sovereign Trust (Gibraltar) Limited
Tel: +350 200 76173