CHINA Law and Practice Contributed by: James Hu, Yingjie Kang, Huihui Li, Sherry Xu, Bivio Yu and Lisa Zhao, Fangda Partners
Investment in Manufacturing Domestic and foreign investment in manufacturing projects require additional governmental approvals, including from NDRC, which has oversight over man - ufacturing activities and production capacity nation - wide. The project may also need to obtain EHS-relat - ed permits, zoning permits and construction permits.
The following consequences are possible. • Unwinding of the transaction – the NSR office may order the transaction parties to make an NSR notification if a transaction has been implemented without the requested NSR notification. Failing to follow such order may result in the transaction being unwound, even if it does not raise national security concerns. And if the NSR office identi - fies a national security concern which cannot be mitigated by the parties’ proposed remedy meas - ures, then it will also have the power to unwind the transaction. • Adverse record in China’s credit information sys - tem – failures to notify relevant transactions will be recorded in China’s credit information system and subject to associated penalties. This will also likely result in reputational risks and an impaired relation - ship with the Chinese government. Under the NSR Measures, there is no monetary pen - alty imposed on foreign investors for the failure-to- notify violation. China has foreign exchange control regulations administered by the State Administration of Foreign Exchange (SAFE). Cross-border transactions are classified into two categories: capital items and trade items. Capital items – capital contributions, loans and dividend distributions – are subject to stricter scrutiny than trade items. SAFE has delegated most transac - tion review and oversight powers to PRC banks. Outbound Direct Investment Regime PRC enterprises, no matter whether foreign or domes - tically owned, must obtain approvals before investing overseas (ODI approvals). These approvals include those from NDRC, MOFCOM and SAFE. The proce - dures to obtain these approvals may take weeks or sometimes months. 8. Other Review/Approvals 8.1 Other Regimes Foreign Exchange Control Regime
9. Tax 9.1 Taxation of Business Activities Enterprise Income Tax
Enterprise income tax (EIT) is levied on the taxable income obtained by enterprises. Taxable income means the balance of gross income obtained by enterprises in a tax year, after deducting non-taxable income, exemptions, various deductions and losses carried forward from the previous five years. Taxpayers are classified into resident enterprises and non-resident enterprises. Resident enterprises include enterprises incorporated in China, and those incorpo - rated outside China based on foreign laws but with de facto management bodies in China. Non-resident enterprises are enterprises established based on for - eign laws and with their de facto management bodies outside China. Resident enterprises are subject to EIT on income sourced both in and outside China, while non-resident enterprises are subject to EIT on income sourced in China or on income attributable to permanent estab - lishment (PE) constituted in China. The standard EIT rate is 25%, while beneficial rates may be applicable to certain enterprises, including but not limited to qualified high-tech enterprises. Income derived by non-resident enterprises which do not have PE in China, or which have PE in China but the income derived is not effectively connected with the PE, is subject to EIT at 10%, unless a preferential tax rate is granted under the relevant double taxation agreement/arrangement (DTA). If a company is organised as a partnership, the com - pany is transparent for the purpose of EIT. Income/
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