MSA’s Top Articles of 2020

2020 has been a challenging year for most businesses due to the outbreak of COVID-19, a global pandemic that was omnipresent throughout the year. In China, the economic consequences of the COVID-19 outbreak included the country’s first quarterly GDP decrease since the opening-up of its economy (in 1978) during the first quarter of 2020. The outbreak of COVID-19 further highlighted the vulnerability and interdependence of global supply chains and further emphasized the importance of the allocation of funds within internationally active companies, which may constitute a shift in future investments towards the Chinese market.

In the past year we have observed several important reforms in order to facilitate foreign investment into China, with the Chinese authorities citing both its commitment to economic reform and equal treatment for foreign investors as well as combatting the economic consequences of the COVID-19 outbreak. In 2021, we anticipate further reforms which will impact the operations of foreign companies active in China and therefore we have compiled a list of the most important articles we wrote over the past year. The remainder of this article covers these articles which we consider of particular importance for the year 2020 and looks ahead at developments which should be further monitored closely for 2021.

Accounting in China: Accrual vs. Cash-based Accounting

In China, foreign-invested enterprises are required to maintain a reliable record of accounts in accordance with the Chinese Accounting Standards, also referred to as PRC GAAP. In order to provide a better understanding of the Chinese Accounting Standards, we have written an article on the differences between accrual- and cash-based accounting and which method a Chinese subsidiary has to adopt based on Chinese legal requirements.

Company Liquidation in China

In the event that a Foreign Invested Enterprise decides to liquidate its subsidiary in China, it is required to complete a time-consuming deregistration process. Properly liquidating a Chinese company is crucial to avoid negative consequences for its registered personnel and the company’s future reputation in China. Therefore, we have written an article discussing the important factors to consider when deciding to liquidate a Chinese subsidiary.

Intercompany Loans : Shareholder Loans to Chinese Subsidiaries

The amount of funds that can be extended via an intercompany loan to a Chinese subsidiary is limited to the so-called foreign debt quota. The foreign debt quota is determined by one of two methods, the Financing Gap Method and the Net Asset Method. Because the chosen method impacts the amount of funds available for intercompany loan and has several other consequences, our article examines both methods in depth and details how the methods can be employed to the operations of a Chinese subsidiary.

Explaining China’s Social Security System and Housing Fund Scheme for Employers

Understanding China’s Social Security system and the Housing Fund is essential for foreign-invested enterprises intent on hiring local or foreign staff. In China, both employees and employers make contributions to the social security- and housing fund. However, the benefits which employees receive as well as the contribution rates differ per locality as the Chinese social security system is administered at the local level. We discuss multiple all essential components of the Chinese social security and housing fund system in this article from an employer’s perspective.

The State of the Chinese Business – Results of the 2020 Sino Benelux Business Survey

The Sino Benelux Business Survey provides insights into the experiences, challenges, and opportunities which Benelux businesses in China face. The 2020 edition of the survey further explores the current business sentiment and provides an outlook toward the future, considering as well the impact of COVID-19 on Benelux businesses in China in 2020.

China Individual Income Tax : Everything You Need to Know

A sound understanding of the Chinese Individual Income Tax (IIT) Framework is essential for both the company and its employees to ensure compliance with regards to Payroll in China. In this article, we discuss all essentials of the Chinese IIT Framework, including the calculation of taxable income, the tax residence rule, available tax deductions, expatriate allowances, and the annual tax returns.

The Chinese Accounting Standards : A Comparison Between Chinese GAAP and IFRS

Although the Chinese Accounting Standards have gradually converged with internationally accepted accounting standards, such as IFRS, several core differences continue to exist. It is important for Foreign-invested enterprises to understand these key differences and how this impacts the financial administration of their Chinese subsidiary. In our article we highlight these key differences and discuss some difficulties which foreign companies in China may encounter as a consequence.

China’s Negative List : An Explainer for Foreign Investment in China

China’s Negative List for foreign investment provides guidance and governs industry sectors in which foreign investment is prohibited or restricted. In 2020, the Negative List was updated and the measures limiting foreign investment into China were reduced for the fourth consecutive year in a row. Our article discusses the background and current state of the Negative List, as well as the recent relaxations and what this means for foreign investors.

Considering the economic impact of the COVID-19 outbreak, further regulatory reform from the Chinese authorities is to be expected in the year 2021. At MSA we will continue to inform you about all regulatory updates in changes in the areas of finance, taxation, and compliance. If you would like to know more about any of the topics in the articles and how they may affect your operations in China, please do not hesitate to contact us.