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Focus China: News & Information for Investors, Entrepreneurs
and Businessmen from Tax Consultants, Accountants, and Lawyers

China: Transfer Pricing Regulation Update

Category: Compliance, Tax policy, July 20th, 2016


On 13 July, the State Administration of Taxation issued a notice related to the long-expected adjustments in regulations of transfer pricing. With the announcement [2016] No.42, the previously valid “Implementing Measures for Special Tax Adjustments (for Trial Implementation)”, (Guo Shui Fa [2009] No. 2) effective for 8 years is partly replaced by SAT [2016] No.42 on two points:

  1. The reporting on related-party transactions (business transactions between a major shareholder and the corporation, such as a contract for the shareholder’s company to perform renovations to the corporation’s offices)
  2. Management of Contemporaneous Documentation (Actual project invoices, plans, and specifications, used to document the outlay of capital by a particular taxpayer for a particular construction project)

The third part of Guo Shui Fa [2009] No. 2 Regulation of cost sharing arrangements meanwhile stays untouched.
Read more…

Introduction to the United States tax compliance act of foreign accounts

Category: Investments, Legal, Miscellaneous, July 14th, 2016

1. What is FATCA?

The Foreign Account Tax Compliance Act is a U.S. tax law that was enacted in 2010 –

Final U.S. Treasury regulations on FATCA were issued on January 17, 2013. The regulations launched on July 1, 2014, and came into effect from 2014 to 2017. It aims to prevent U.S. tax evasion by U.S. persons through use of offshore accounts held at Foreign Financial Institutions (“FFIs”) and Non-Financial Foreign Entities (“NFFEs”). The U.S. Internal Revenue Service (“IRS”) and the U.S. Congress believe that many U.S. citizens are evading U.S. taxes by hiding their assets overseas.
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New Chinese-German tax agreement –

Category: Tax policy, July 14th, 2016

The State Administration of Tax (”SAT”), has released Tax Circular No. [2016]37 and the Interpretation of double agreement on taxation between China and Germany (“DTT”) on 16 June 2016. Tax circular 37 informs the new DTT will be in effect from 1 January 2017 onwards as the new tax agreement is approved by both governments.

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Work in Germany: Getting a Work Permit

Category: Legal, Miscellaneous, June 16th, 2016

Do I need a visa to work in Germany? And what conditions apply to me? This is the first question you may ask yourself, if you are planning to work in Germany. In a nutshell, it depends on which country you come from and what qualifications you have.  If you are from countries outside of the EU/EFTA, Australia, Israel, Japan, Canada, the Republic of Korea, New Zealand or the USA, you will need at first a visa to enter Germany. Depending on the purpose of your stay, the visa will be changed into a corresponding residence permit (Aufenthaltstitel) at the local foreign nationals’ registration authority. 
Read more…

Chinese Investors’ Interest in German’s Hidden Champions

Category: Investments, June 14th, 2016

It is long known that Chinese investors tend to have an appetite for Germany’s small and medium-sized companies. But the takeover of the Swabian concrete pump manufacturer  by construction giant Sany from Changsha (长沙) in 2012 brought a new investment strategy to the public eye, a switch-over from acquiring struggling enterprises to especially seeking very successful, established and specialised companies, the so called “hidden champions”. 

These often family-owned companies are almost exclusively small and medium sized enterprises and are categorised by their position in the top 3 on the global market, their revenue between $4 billion and a low level of public awareness. Within their niche markets they are sometimes a single product manufacturer who work closely together with their customers to find specific solutions. This customer interaction is the key driver of innovation and allows the hidden champions’ R&D to beat that of large companies by a factor of five. Consequently they earn their market share through performance and not price.

Now there are three reasons that make hidden champions an interesting investment opportunity for Chinese investors. First, according to the German Association of Chambers Commerce and Industry, the DIHK, an ageing population and an alternation of generation with no heirs or children who are unwilling to take over their parents’ business many of these companies are up for sale. Since owners of a family enterprises are often emotionally attached to the company, they are looking for an adequate investor, who holds comparable ideas about the enterprise’s future.

This is where Chinese investors become relevant, because they often see acquisitions in Germany as long term, strategic investments, which align with the hidden champions’ focus on long term growth instead of short term gains.

The third reason why hidden champions are interesting for investors from China is the opportunity to acquire know-how without the costs and time of development by buying a German high-tech enterprise and then being able to apply this knowledge to their own market at home.

The advantages are not only on the investor’s side, but also on the side of the German business because a Chinese investment allows the company to have access to a greater capital base and easier entry to the market in China. With China being a country of rapid development and high demand for services and technological know-how, it opens up possibilities of getting a foothold in a new market and consequently ensuring further long time growth.

It is not all positive, though, Foreign acquisition of companies that are strongly embedded in their environment is often met with scepticism and concern by the employees as well as the public. The fear that the enterprise’s identity and future is under threat is, as history shows, often unsubstantiated, because acquired businesses tend to retain their identity after a take-over.

The hardest part about the strategy of investing in hidden champions is in the name itself. The circumstance that they are hidden makes them hard to identify, especially for foreign investors, which require a trustful partner to help find the optimal investment opportunity. 

Even 4 years after the deal between Putzmeister and Sany, the topic is still highly relevant as individuals, companies and private equity firms compete for the famous German small and medium-sized enterprises. But it seems that Chinese – German cooperation is a general success. As the previous owner of Putzmeister Karl Schlecht stated: “What Sany is doing in China is something we can only dream of.”


Category: Events, June 8th, 2016


After our first Hannover Messe (HM) has come to a successful end, we are looking back at one of the world’s most important industrial trade shows. The first HM, then still called “Export Messe 1947 Hannover” was organized in 1947 as a competitor to the Leipzig Trade Fair. This laid the cornerstone for the now biggest fair for investment goods worldwide.

Henceforth, the HM’s core themes were industrial automation, IT, energy and environmentally friendly technologies, as well as research & development. These topics attract nearly 200 000 visitors per year plus 5000 exhibitors from 75 different countries. Among the top 3 exhibitor nations, China, next to Germany and this year’s partner country, USA, was present with 650 exhibitors. Additionally, both the U.S. and China broke new records with regardto the numbers of visitors from each respective country. Both crossed the 5000 thresholds and occupied, after Germany, the 2nd and 3rd place. Thus, China solidified its position as the second-biggest visiting nation at the HM.


This year’s theme: „Integrated Industry – Discover Solutions“.

Since 2010, the HM has had changing partner countries. This year’s partner was the United States of America. Accordingly, on April 24th, 2016, the HM had the honor to welcome President Barack Obama and Chancellor Angela Merkel for the opening ceremony. The President’s objective: convince more companies to invest in the United States. After the HM was officially opened at 7:28pm, Obama and Merkel undertook a joint tour of the trade fair, starting with the booths of American companies and covering technologies, such as 3D printers or electric vehicles. The winner of the Hermes Award 2016, Hartin IT Software, was also honored by a visit.

Finally, Obama used the occasion to give a speech to over 500 students and faculty members at the Leibniz University of Hanover. Apart from numerous global issues, he emphasized the importance of a peaceful, united and liberal Europe for the future of the world.


ECOVIS Beijing was not only impressed by the high-profile opening ceremony, but by the HM’s atmosphere and opportunities in general. We launched our first HM with a motivated team in order to promote ECOVIS Beijing and especially our new Heidelberg office and to make new contacts. Our ECOVIS Beijing partner Richard Hoffmann came to lend a helping hand. The precise preparation and the open and friendly attitude of our team turned the HM 2016 into a resounding success. We want to thank everyone, who has visited our booth and are looking forward to the next Hannover Messe. 

ECOVIS Beijing can provide templates for both labor contract and staff manuals. For further information, please contact: richard.hoffmann@ecovis-beijing.com

New Plan for German-Sino-Hi-Tech-Park in Heidelberg

Category: Investments, May 5th, 2016

On May 2nd, 2016, representatives from the two municipalities; Heidelberg (Germany) and the Beijing District of Haidian (China) have established a cooperation agreement in order to intensify their mutual exchange in the areas of research and development. Haidian, home ground to Chinese IT-giants’ headquarters, such as Baidu or the video-platform Youku, is often considered to be the Silicon Valley of China. The agreement also includes the creation of a new technology park based in the Patton Barracks, a former US Army base, located in Heidelberg. In the future, this park will welcome Chinese high-technology firms.

This agreement marks an important step forward in the development of Sino-German cooperation as well as with regard to China’s strategic objective to increase its exports of R&D products to Europe. The complementary partnership allows both Germany and China to realize their respective industrial policies ‘Industry 4.0’ and ‘Made in China 2025’. Both policies include an integration of modern information and communication technologies with industrial production and thus constitute a solid foundation for further cooperation.

On the Chinese side, the delegation included representatives from Lenovo and ZTE. The concrete pump manufacturer Putzmeister, the project developer Euroscom, and the software company SAP App-House participated on the German side.

Ecovis Beijing provides a comprehensive portfolio of legal, tax and audit services for your investment in Germany. If you need further information or advice on investing in Germany, please feel free to contact us: richard.hoffmann@ecovis-beijing.com

New Tax Regulations for Cross-Border E-Commerce

Category: Tax policy, May 3rd, 2016

In March 2016, the Chinese government issued two new regulations, which have changed the taxation of imported products bought online from businesses abroad (B2C). Previously, cross-border online purchases for personal use were mainly treated as individual postal items and were normally subjected to a tax rate of 10% with taxes below 50 RMB being exempted.

According to two new regulations, the Announcement on the Tax Policy on Cross-Border E-commerce Retail (Cai Guan Shui (2016) 18) and the Notice on Relevant Issues Concerning the Adjustment of Import Duties on Imported Articles (Shuiweihui〔2016〕2), imported goods bought online will now be subjected to Customs Duties, VAT, and Consumption Tax. This brings the taxation of cross-border e-commerce closer to that of general trade.

This regulation affects all foreign companies, which are offering online transaction, payment and shipment services (mainly B2C). Companies or individuals, which are unable to provide these services (mainly C2C) do not fall under these regulations and will be, for the time being, treated according to existing regulations and taxed under the parcel tax.

Foreign business engaged in trans-border e-commerce have to register with the General Customs Administration (GAC) and provide information of the transaction to the Chinese cross-border e-commerce customs clearance service platform. The submission of information to the platform can also be done by online-platforms and courier services on behalf of the foreign business (GAC Announcement No. 26, 2016).

Tax reductions for trans-border retail e-commerce

The new policy also raises the value of duty free shipments from 1000 RMB to 2000 RMB. Now, single shipments worth less than 2000 RMB and orders having a cumulative value of less than 20 000 RMB annually are exempt from Customs Duty, but will be subjected to a reduced VAT and Consumption tax amounting to 70% of the normal tax amount. For products exceeding these limits usual custom duties apply and the entire value will be taxed. If goods are returned within 30 days to the customs supervision, customers can apply for a tax refund and import taxes will not be levied.

  value of single product less than 2000 RMB, and less than 20 000 RMB annualy value of more than 2000 RMB for single product and more than 20 000 RMB in the same year
Custom Duty 0% taxed like General Trade
Import VAT 70% of total tax
Consumption Tax

Which foreign articles can be sold online?

A List of Cross-Border E-commerce Retail Imported Articles[1] was issued on April 4th, 2014 by 11 ministries and includes 1142 articles, each marked with an 8-digit tax code (MOF Announcement No. 40, 2016).

Surprisingly, this list initially excluded some popular products, such as milk, which is high in demand among Chinese citizens due to the low level of trust into domestic brands. This caused some concern among foreign companies selling these goods and also raised questions with regard to goods stored in bonded areas and those already sold but not yet shipped.

Responding to the criticism, the Ministry of Finance published an updated version of the list on April 15th, which added another 151 products and now also includes milk (MOF Announcement No. 47, 2016). The list of the added goods can be found here[2].

Who has to transfer the tax?

In general, the main tax burden will fall upon the customer. Nonetheless, there are differences as to who will withhold the taxes.

Option 1: Transaction via E-Commerce-Platforms (e.g. JD Worldwide, Tmall Global)

If the transaction is carried out via E-commerce-platforms, the platform’s owner will usually withhold the taxes and transfer them directly to Chinese tax authorities. This is the most convenient method for both businesses and customers.

Option 2: Direct sale via your business website

If the good is purchased directly on a foreign company’s website, there are two possibilities:


  1. The customer pays the taxes in person. In this case the business only receives the payment for the product without the additional tax amount. The customer then has to pay the levied taxes directly to the Chinese customs authorities.

This, of course, is rather cumbersome for the buyer, since the purchased good might be retained by custom authorities until all taxes are paid.

  1. b) In most cases, however, the courier service (e.g. EMS, DHL) will withhold the tax for the customer.


Revised tax rates for other imported articles (excluding General Trade and E-Commerce)

Parallel to the new policy, tax rates for articles imported through other personal channels (Parcel Tax or 行邮税) were also adjusted (GAC Announcement No. 25, 2016). They will now fall under three categories, instead of the previous 4:

Tax Rate Product Types
15% Books and newspapers, publications, audio and video materials for educational use; computers, video cameras, digital cameras and other IT products; food and beverages; gold and silver; furniture; toys, gaming products, and festive and other recreational products
30% Sporting goods (excluding golf balls and clubs), fishing tools; textiles and their manufactured goods; TV cameras and other electrical appliances; bicycles; and other items not included in the other two categories
60% Alcohol and tobacco; valuable accessories, jewelry and gemstones; golf balls and clubs; luxury watches; cosmetics


The parcel tax, whose Chinese name xingyoushui is a combination of luggage (xingli) and postal (youjian) tax (shui), applies to all products, which are imported through personal or postal channels, and for which no e-commerce filling exist. The parcel tax is a composite tax which combines customs duty, import VAT, and consumption tax. The taxable amount includes all transaction costs (retail price, shipment, insurance, etc.). The principle of waiving taxes below 50 RMB remains intact.

For further information please feel free to contact us: manuela.reintgen@ecovis-beijing.com

Investment Opportunities in Industry 4.0 – Industrial Revolution “Made in Germany”

Category: Miscellaneous, April 26th, 2016

After the mechanization, the electrification and the digitalization of production,the latest industrial trend is made in Germany: Industry 4.0 – a keyword when it comes to the question how industries will look like tomorrow. But what does Industry 4.0 actually mean? What is the status quo? And what are the opportunities for foreign investors?

The Two Components of Industry 4.0

Industry 4.0 basically describes the fusion of IT and industrial production. In particular, it means that production machines are able to communicate with each other and also with the people who operate them. This makes the employees only supervisors in the factory of the future, or – how it is often called – the ‘Smart Factory’. The ‘Smart Factory’, which is described by connected production components and therefore an efficient and flexible production, is the final goal of Industry 4.0.

Industry 4.0 consists of two components –Information Technology and Engineering. While German engineering has a good reputation worldwide, the German IT industry still leads a shadow existence. Only afew large IT companies such as SAP and Telekom seem to be the leading forces in Industry 4.0. However, there is a large number of highly specialized “hidden champions” which contribute important innovations in fields like cyber security or cloud computing. Thefact that most of the German software companies do not focus on end users but rather on corporate customers makes the German software market the largest in Europe with stable growth rates of 5-6%. Nevertheless, the implementation of smart IT solutions requires the engineering side of Industry 4.0.

The Current Status


Even though IT is the main driver in Industry 4.0, the highest efficiency gains are expected in other industries. Especiallythe traditionally strong German industries such as engineering and automotive are expected to achieve the highest economic gains from the transition towards a digitalized and smart production. Considering the investment requirements estimated at 18 bn. EUR annually, it would still be a profitable step for the German industry.


The willingness of German companies to invest does currently not meet the high expectations of many politicians. Despite the recentgrowth of Investments in Industry 4.0, it is still at a level as low as one billionEuro annually. The reason for this underinvestment isnot the absence of the technology required. In fact, most essential technologies for Industry 4.0 are already available. The most fundamental obstacle of the transition is the low capitalization and the risk aversion of many German companies. Especially the German “Mittelstand” (SMEs), which mainly consists of specialized family enterprises, avoids investments in the IT solutions. However, the German government actively encourages their vision of an entirely digitalized production until 2020 and a largely automated production as the next evolutionary step. Besides the education of skilled labour and the financial support of R&D in the relevant fields, the Platform Industrie 4.0 was founded. It is the largest platform of its kind and connects research institutes with companies of the engineering, the IT and the production industry.


Opportunities for Foreign Investors

Like mentioned above, the investments of German SMEs in Industry 4.0 are far too low. In many cases they lack the required financial capital and therefore foreign investors can compensate this issue by investing. One option for foreign investors is to invest in or to acquire a German company and to participate in the gains from the innovation. Another option is the collaboration between German and foreign companies. This can be implemented through outsourcing or through a joint venture with a foreign company. Joint ventures are a popular way to gain know-how about Industry 4.0 but many German companies avoid outbound outsourcing and joint ventures with foreign companies. This is due to their limited information and concerns about legal and data security matters.

Ecovis is an experienced partner in order to overcome these concerns. The provision of legal and tax information and the mediation between German companies and foreign investors is one of our key competences.

Ecovis Beijing provides a comprehensive portfolio of legal, tax and audit services for your investment in Germany. If you need further information or advice on investing in Germany, please feel free to contact us:  richard.hoffmann@ecovis-beijing.com.

Overview of the Chinese Work Visa for foreigners

Category: Legal, April 22nd, 2016

Foreigners, especially those that intend to work in China, often face the question of which visa type to apply for. Since the Chinese Central Government implemented new visa regulations in September 2013, the complexities of the application process have increased even further. The different visa categories should therefore be examined in detail.

Since 2013, the Administrative Regulations of the People’s Republic of China on Entry and Exit of Aliens (as of September 1st) as well as The Law of the People’s Republic of China on the Administration of Exit and Entry (as of July 1st) regulate the entry requirements for foreigners into China. There are now twelve different visa categories instead of the previous eight.

If overseas or domestic companies wish to hire foreign workers in China, the first organisational obstacle is to solve this visa issue. Therefore, particularly those visa categories, which are relevant for foreigners with the intention to work in China, are illustrated below (see Figure 1). At this point, the new M, R, and S Visa categories as well as the changes to the work visa (Z Visa) are most important.


Visa Type


Required Documents

Z Visa

For foreigners working in China

Ministerial Invitation Letter,

Alien Employment License

M Visa (new)

For persons that are invited to China for commercial purposes or trade

Invitation Letter of the party in China, Business License of the company

R Visa (new)

For particularly skilled professionals and highly specialized experts whose qualifications are in urgent need in China

Conditions of the Chinese government set for these experts are to be met, approval of the respective authorities needs to be reached and the required documents need to be provided

S1 Visa (new)

For parents, spouses, children under 18 and parents-in-law of foreigners who work or study in China; for long-term visits (more than 180 days) of these relatives and for other personal affairs

Invitation Letter submitted by the relative living in China; Residence Permit, Passport Copy of the relative and Proof of Relationship

S2 Visa (new)

For family members of foreigners who work or study in China; for short-term visits (less than 180 days) of these relatives

Refer to S1 Visa

F Visa

For exchange visits, study, travel, or other (non commercial) activities

Invitation Letter from the person in China

Figure 1: Overview of Visa Types according to activity in China


As companies in China may employ foreigners with valid work visas only, the most reasonable long-term solution for sending staff from Europe to China is the Z Visa. Foreigners planning to work in China should enter the country only when holding a valid Z Visahowever, the application process for such a work visa is more complicated than, for example, that of a business visa (M Visa).

Before the actual start of the application process for a Z Visa, the foreign applicant must meet certain requirements (seeFigure 2): The employment agreement must already have been signed when applying for a Z Visa and the applicant must be able to prove the qualifications needed for the desired job in China. Furthermore, the minimum age of 18 years as well as good physical health are required and the applicant must present a clean criminal record to prove no previous charges.




In some cases, a personal interview with the respective visa authorities may be necessary. This may be the case, for example, if you apply for a Permanent Residence Permit in China; if you need to verify personal information and the reason for your application; or if you have been previously denied the entry into or exit out of China. Therefore, we advise companies in China to factor in enough time for the visa application procedure of their employees.

Upon arrival of the employee in China, the Alien Employment Permit and a work-related Residence Permit have to be obtained first. These permits represent yet another step through Chinese bureaucracy that has to be taken by both employers and employees. Figure 3 provides an overview of the lengthy process to a successful start of work in China – including responsibilities and timelines for the respective steps.



1st Alien Employment License
The prospective employer in China needs to provide certain documents in advance. Before hiring foreign employees, companies initially need to apply to the Beijing Administration of Foreign Expert Affairs for permission. The required documents for the application for an Alien Employment License are the following (see Figure 4): CVs of the foreigners to be employed, confirmation of the employment, explanation of the planned employment relationship, certificates that demonstrate the employees’ qualifications for the respective position the necessary medical certificates and the completed visa application form with a recent coloured passport photo. The processing time for this step is generally 15 working days.




2nd Ministerial Invitation Letter

Besides the Employment License, the company must also provide an original copy and a photocopy of the ministerial Invitation Letter to the foreign employee. The Invitation Letter is issued in China within three working days by the Beijing Municipal Commission of Commerce.


3rd Work Visa

With the Employment License and the Invitation Letter, the actual application for the work visa can begin. This takes place in the Visa Centre of the respective Chinese embassy or Chinese consulate. In Germany this may be the China Visa Centre of the Chinese Consulate in Munich, the Chinese Consulate in Frankfurt, the Chinese Consulate in Hamburg or the Chinese Embassy in Berlin. The authorities estimate the processing time at 4 working days.


4th and 5thPhysical Examination and Employment Permit

The next stepis to obtain an Alien Employment Permit for the applicant in China within 15 days after entering China. Therefore, the employee has to submit the health check report in duplicate. In addition, a photocopy of the labour contract, a photocopy of the Business License of the company and one original copy and a photocopy of the Registration Form of Temporary Residence and of the valid passport are needed for the application of the Employment Permit. The processing time of the application for a work permit is 5 working days.


6thResidence Permit

Once the new employee has obtained his Employment Permit, the final step follows: The application for a Residence Permit. This must be concluded at the Beijing Municipal Public Security Bureau Exit-Entry Administration within 30 days after entering China. The necessary documents for this purpose are a valid passport and all documents relevant to the purpose of the application as well as a scan of fingerprints. The decision of the Public Security Bureau as to whether a residence permit is issued will be made within 15 working days. The validity of a work-related Residence Permit lasts one year, for legal representatives of a Chinese company (foreign invested company) a residence permit for the duration of two years can be granted.


According to Chinese law, foreigners contributing greatly to China’s economic and social growth or those that meet other conditions can apply for a Permanent Residence Permit. The Chinese Ministry of Social Security must recognize this application.

After completion of these steps,the foreign worker may begin the legal employment in China. Please contact our office for support during your application procedure.