A Potpourri of Regulations
There you go! Out comes another one of China’s efforts to lure MNCs. This time, it is patents and trademarks. About a fortnight ago, China signed a Memorandum of Understanding (MoU) with the World Intellectual Property Organization (WIPO). The purpose was to promote the recognition of a system for the international registration of trademarks. Not even two months ago, the government had released and implemented a new regulation called Cai Guan Shui 18 reclassifying all e-commerce sales as part of general trade as opposed to the hitherto usual classification of cross-border trade coming under Parcel Composite Tax. A list of “eligible” import products was also issued. Businesses whose products were not on the list made up their minds to pack up.
In less than six months, over 60 circulars have been issued to promote trade and e-commerce. In such a constantly changing environment, international companies may sometimes feel at a loss as it is difficult to predict how long-standing a regulation will turn out to be. Formulating business strategies becomes difficult as a result.
It all started about four years ago. A tax reform started with the objective of replacing Business Tax (BT) with Value Added Tax (VAT). The argument was that BT was an ineffective system that taxed businesses at each stage of a supply chain regardless of whether or not that stage added any value to the product. The VAT system was supposed to remedy this problem. VAT has gradually covered all cities and provinces in mainland China, as well as multiple business sectors.
An effective recourse, then, for American companies looking to do business in China is turning to agencies such as US-China Business Council (USCBC). This non-profit has had a presence in China for over forty years and keeps abreast of all the relevant regulations, as well as the Chinese market. Over 200 US based companies are members. Alternatively, consulting companies such as PwC and E&Y can be consulted. In addition, products can be sold through “bonded ware-houses” as opposed to non-bonded ones. A product stored in the former is still considered "in transit" and hence no taxes are paid on it until it is shipped out to a customer. The bonded warehouse provides a great advantage: international companies have a quick "out" in case unexpected regulations pop up and continuing business becomes unfavorable.