On 9 September 2016, the State Administration of Foreign Experts Affairs unveiled the reform of the current work permit system for foreigners, who live in China. The changes will merge the various regulations for foreign specialists with the normal application procedures. The reform will replace the current work permit booklet with a small card. Additionally, it implements a grading system, which will rank foreign workers according to their experience and skills.
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The deadline for the Annual Audit in China is on 31 May. Although it seems there is still a long time until the deadline is due, there is an incredibly huge amount of work, which needs to be done before the annual audit reports can be handed in.


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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.
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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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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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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. 
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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.”

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 2^nd and 3^rd 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 24^th, 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

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

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.

Which foreign articles can be sold online?

A List of Cross-Border E-commerce Retail Imported Articles[1] was issued on April 4^th, 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 15^th, 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:

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