All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

China announces measures to liberalise financial sector and reduce VAT

Sponsored by sponsored-firms-kpmg.png
intl-updates

Against a backdrop of continuing China-US trade tensions, Chinese President Xi Jinping on April 10, at the Bo'ao Forum for Asia, announced a 'four-point plan' for the further liberalisation of rules governing foreign investment in, and trade with, China.

This largely brings together a number of initiatives which were already underway, with a few new additions. Shareholding cap limitations on foreign enterprise investment and activity in the financial services, automotive, shipbuilding and aviation sectors will be reduced, and import tariffs, including for automobiles, are to be reduced. Details of some of these initiatives were recently released, along with the details of the VAT reductions announced in Premier Li Keqiang's government work report address to the National People's Congress (NPC) back in early March.

The financial sector changes have been moving forward in recent weeks:

  • For the banking sector, there has long been a limitation on foreign equity ownership in Chinese banks and financial asset management companies. This includes a 20% limit for a single foreign investor and a 25% limit for several foreign investors collectively. Under already announced planned changes, both foreign investors and domestic private investors in Chinese banks (which are generally state-owned enterprises) will be subject to the same equity limit rules – specific enacting regulations are still awaited. Alongside this, the Chinese banking regulator issued CBRC Order No. 3 in February 2018, permitting the Chinese subsidiaries of foreign banks to invest in Chinese banks (previously the investment needed to come from overseas directly); scrapping the administrative licensing requirements for some services offered by foreign banks in China (e.g. wealth management, custodian business); and eliminating some of the regulatory pre-approvals previously applying to foreign banks, which had not applied to Chinese banks (e.g. certain fund raising and executive appointment activities).

  • For the investment securities sector, there has long been a limitation on foreign equity ownership in securities companies of 49%. Under already announced planned changes, this is to be lifted to 51% and then fully relaxed three years later. To this end, the Chinese securities regulator issued draft measures in March 2018 which would put this change into effect, to seek public comments. The relaxation also applies to listed securities companies, and the equity holding limit for a single foreign investor is simultaneously lifted from 20% to 30%.

  • For the Chinese payment services sector, and in line with earlier announcements, the central bank in March 2018 issued PBOC Circular No. 7 to permit involvement by foreign non-financial institutions, through a locally established subsidiary, in providing fund transfer services, including online payment, issuance and acceptance of prepaid cards, and bank card acceptance.

These changes are occurring at the same time as China seeks to boost the economy through VAT reductions. Under Circular No. 32, issued by the Ministry of Finance and the State Administration of Taxation in April 2018, effective from May 1, the existing 17% VAT rate, applicable to sale and importation of goods, lease of movable property, and processing and repair services, will be reduced to 16%. At the same time, the existing 11% VAT rate, applicable to transportation, sale and lease of immovable property, telecoms and post services, construction, agricultural products, and water and gas supplies, will be reduced to 10%. The government had earlier indicated plans to reduce the number of VAT rates from three to two (there is also a 6% rate for many services), so further changes are anticipated in future.

ho-khoonming.jpg

lu-lewis.jpg

Khoonming

Ho

Lewis Lu

Khoonming Ho (khoonming.ho@kpmg.com) and Lewis Lu (lewis.lu@kpmg.com)

KPMG China

Tel: +86 (10) 8508 7082 and +86 (21) 2212 3421

Website: www.kpmg.com/cn

More from across our site

The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree