ECOVIS Elkadeem & Co.

Cross Border eCommerce in China

In recent years, due to the huge potential of China’s consumer goods market, more and more global retailers have turned their attention to China. Ten years ago, not only were there fewer choices of goods, the payment and after-sales service were both extremely inconvenient and ineffective. With the rise of the e-commerce industry, not only have consumers adjusted their consumption habits, enterprises also have dual investment channels: traditional mode and e-commerce mode. In Figure 1 we demonstrate how foreign companies invest in China.

Figure 1: How Foreign Companies Invest in China

It is obvious that a single traditional or e-commerce mode can no longer meet the rapid development of the consumer goods market. We suggest that you invest in China in two parallel modes. This can make up for the time gap in the establishment of companies due to obtaining licenses, and also accurately target companies and individual users.

As a professional services agency, ECOVIS Ruide China provides you with comprehensive services for entering the Chinese market, including compliance, strategic investment, taxation and finance, to reduce the potential adverse conditions caused by an unfamiliar investment environment.

If you are a foreign company looking to invest in China, feel free to contact us to see how we can assist you.

GST In Malaysia: Will It Return?

After spending a number of years studying Goods and Services Tax (GST), Malaysia was the last country in the Association of Southeast Asian Nations (ASEAN) excluding Brunei to implement GST in 2015. However, Malaysia became the first to abolish GST in 2018 after the fall of the Barisan Nasional government in the Malaysian 14th General Election. The purpose of introducing GST in Malaysia was to reduce fiscal deficit and debts of the government. Further, the tax revenue from oil had dropped drastically since 2014.

Since the abolishment of GST in 2018, the new Pakatan Harapan government has been finding ways to improve revenue collection, and at the same time repay the government debts. Examples of these initiatives are the new Sugar Tax (effective from 1 July 2019), the expansion of the scope of the Sales and Services Tax (which replaced the GST), and the latest Digital Services Tax effective from 1 January 2020.

The voices calling to bring back GST have been louder recently, especially since the recent Budget 2021 under the new Perikatan Nasional (National Alliance) government. With reference to Table 2.1 in the 2021 Fiscal Outlook Report (see Figure 1), we can see the Malaysian government very much relied on direct taxes such as corporate income taxes, individual taxes and petroleum income taxes. The indirect taxes collected in 2019 and 2020 were only half of the total GST collected during the GST era.

Figure 1: 2021 Fiscal Outlook and Federal Government Revenue Estimates

Now, with various challenges ahead for Malaysia including political instability, stimulus packages provided by the government due to the pandemic, world oil prices, close to zero activity in the tourism sector, and economic turbulence caused by COVID-19, will there be a return of GST in Malaysia?

Author: Ang Heng Ann, ECOVIS Malaysia

The Impact of COVID-19 on Contracts and Force Majeure

The COVID pandemic has a significant impact on the performance of contracts between parties. Therefore, clauses stating that a party does not have to perform a contract in the event of force majeure are necessary in both Polish and English law.

Polish Law

Polish civil law does not define force majeure. However, it provides for legal instruments that allow one of the parties to modify the contract under extraordinary circumstances that make the performance of the contract impossible, or too expensive to be economically viable.

These instruments are:

1. Clausula rebus sic stantibus (Latin: “things thus standing”). The legal doctrine allowing for a contract or a treaty to become inapplicable because of a fundamental change of circumstances.
2. An inability to perform the contractual obligations.

The first of these means that in case of an extraordinary change in circumstances that the parties had not foreseen while entering into the contract, but which results in the further performance of an obligation being unreasonably burdensome, or would lead to a material loss, the affected party may request the revision or termination of the contract. The weakness of this instrument is that the revision or termination must be applied for in court, which may lead to a situation where the affected party may already have incurred an irreparable loss before the court ruling.

We will support you if you have to cancel or change a contract due to the COVID pandemic.

Nikodem Multan, Attorney at law, Partner, ECOVIS LEGAL POLAND PRUŚ AND PARTNERS LAW FIRM, Warsaw, Poland

Under the second instrument, if a contractual obligation becomes objectively impossible, then the obligation will expire. This applies only to extraordinary situations where the performance of an obligation is impossible, and thus this solution is rarely available in issues caused by the COVID pandemic.

Consequently, the Ecovis advisers in Poland recommend that the only effective solution is a precise contractual clause that provides for such situations and forces the parties to modify the contract.

English Law

English law is quite different; it is not based on a civil code. There are no consistent rules for what happens on events outside the parties’ control, nor on impossibility.
The ideas in English law which are most comparable are:

1. Frustration: A contract may be discharged when something occurs which renders it impossible or radically different from that agreed.
2. Impossibility: A party may be excused by a court if the contract becomes impossible.

Neither option is helpful; the contract will not be undone as if it had never existed or terminated in full. Instead, accrued rights survive and although money paid can be recovered, money due but not paid ceases to be payable and the court may allow recovery of expenses incurred and a “just” payment for any benefit gained.

Only enter into contracts with explicit clauses on force majeure. We would be happy to advise you.

Mark Lucas, Lawyer, Moore Barlow LLP – Member of ECOVIS International, Guildford, Surrey

This is too much uncertainty. Well-advised parties use contracts with explicit force majeure clauses. These typically:

• excuse one or both parties from performance (and liability) on force majeure
• define force majeure as events outside a party’s reasonable control
• give non-exhaustive examples
• contain duties to notify, to mitigate the consequences and to discuss and agree a preferred outcome
• allow the parties to suspend the contract to allow such discussions
• ultimately, allow the affected party to terminate
• contain clear and agreed consequences of termination.

Neither Brexit nor COVID-19 has caused any cases which have caused us to think again about the law on force majeure. We have seen lots of disputes where parties disagree about the effect of COVID-19 on their contracts (typically contracts for events and conferences). All have been settled by agreement. We are not aware of any cases which are likely to change the law, say the legal experts from the UK.

For further information please contact:

Nikodem Multan, Attorney at law, Partner, ECOVIS LEGAL POLAND PRUŚ AND PARTNERS LAW FIRM, Warsaw, Poland
Email: nikodem.multan@ecovis.pl

Mark Lucas, Lawyer, Moore Barlow LLP – Member of ECOVIS International, Guildford, Surrey
Email: mark.lucas@moorebarlow.com