People's Republic of China business support guidance

Employment

The Central Government, local authorities, the Ministry of Human Resources and Social Security National Immigration Administration and other relevant authorities have recently announced a series of employment policies and measures which are intended to support public services, people and businesses in mainland China affected by the disruption caused by COVID-19. This section provides an overview of such policies and measures.

Properly handling labour relations during the outbreak of novel coronavirus

On January 24, 2020, the Ministry of Human Resources and Social Security issued a notice clarifying several issues related to the handling of labor relations during the outbreak of the COVID-19 pandemic, which addresses the following issues:

• Employers must continue to pay remuneration to employees during the period in which employees are unable to work as a result of being subject to medical treatment, medical observation, government quarantine measures or other government-mandated emergency measures (the “Relevant Period”).
• During the Relevant Period, employers shall not terminate the employment relationship with any such employees based on grounds under Articles 40 and/or 41 of the Labor Contract Law.
• Where employment contracts are due to expire during the Relevant Period, such employment contracts will be automatically extended to the end of the Relevant Period.
• Where an employer’s operations are adversely affected by the COVID-19 outbreak, that employer should seek to avoid or minimize layoffs by consulting and reaching a consensus with its employees to adjust salaries and work

Exemption of social security contributions

On February 18, 2020, the Standing Committee of the State Council adopted national policies to reduce employer social insurance contributions and delay housing fund contributions. On February 20, 2020, the Ministry of Human Resources and Social Security, together with the Ministry of Finance and the General Administration of Taxation announced the following:

• From February 2020 onwards, provinces may exempt small and medium-sized enterprises for up to five months from paying the employer portion of contributions for pension, unemployment, and occupational injury insurance.
• Provinces may reduce by 50% the employer contributions made by large enterprises for pension, unemployment, and occupational injury insurance for up to three months.
• Hubei province may exempt all employers from paying the employer contributions for pension, unemployment, and occupational injury insurance for up to five months.
• All employers that suffer serious difficulties in production and operation due to the pandemic may apply for deferred payment of contributions for all five types of social insurance for up to six months. Approved employers would not be liable for late payment fees.

In cities and provinces there are more detailed to rules to implement such nationwide requirements.

Childcare leave granted for working parents

Due to the nationwide government-ordered closure of schools, working parents are experiencing an increased burden to stay at home to care for their children. To alleviate the burden on working parents, the Beijing municipality introduced a new childcare leave policy which grants an employee paid leave to allow him/her to stay home to care for his/her child during the period in which the opening of schools have been postponed, subject to the condition there is no other adult family member available to care for the child. During this period, employees are protected from termination and their employment contracts are automatically extended. According to the policy, employees are “encouraged” to work while they are at home. To date, Liaoning Province is the only other jurisdiction that offers similar childcare leave.

According to a statement made by a spokesperson for the Shanghai municipal-level labour union at a press conference held on 9 February 2020, employers in Shanghai are not required to grant childcare leave to employees. Instead, the employers are encouraged to consult employees and find an amicable solution to address the issue of childcare. If such childcare leave is granted, employers and employees should discuss the amount of salary the employee is entitled to during childcare leave.

Visa extension for foreign employee

Work permit

• The Administration of Foreign Experts Affairs announced on February 7 2020, that the existing requirement to submit a renewal application at least 30 days prior to the expiration date of a work permit has been relaxed. Employers can now submit online applications to renew their work permits until the date of expiration.
• Shanghai authorities announced on February 1 2020, that online application procedures generally available only for more qualified Category A employees are extended to applications for Category B and Category C employees. Employers of Category B and Category C employees must submit letters assuring that application documents submitted online are authentic. The online procedure, which eliminates the requirement for hard copy on-site filing, applies to applications for notification letters for Z visas, work permit renewals, and work permit cancellations.

Visas/Resident Permit

On February 27 , 2020 the National Immigration Administration announced the following policies:

• the terms of visa and residence permits are automatically extended for two months for foreign nationals who are engaged in innovative entrepreneurship and scientific research;
• foreign nationals who have used the maximum number of entries permitted by their visas may get new visas in China. Under the usual practice, these foreign nationals would be required to get new visas abroad;
• foreign nationals who have resident permits that expire when they are outside of China may apply for landing visas at Chinese ports to enter the country and later file to extend their resident permits;
• foreign nationals who have investment, entrepreneurship, business, or other urgent matters may first enter China on landing visas and then convert those visas into other types of visas or residence permits in China with supporting documentation;
• visa, residence permit, and permanent residence applications may be submitted by email or post; and
• expedited examination and approval procedures for Chinese and foreign employees who need to enter and leave the country for the resumption of work.

On January 31, 2020, the National Immigration Administration announced that foreign nationals who are unable to exit China before the expiration of their visas or resident permits, or are unable to extend visas or residence permits, may be given lighter penalties or exempted altogether from sanctions.

On December 29, 2019, Shanghai authorities had announced that foreign nationals holding Z work visas that have expired due to delays caused by the pandemic may enter China with other types of visas and convert those visas in China into resident permits.

Financing/debt

The Ministry of Commerce, People’s Bank of China (“PBOC”), National Development Regulatory Commission (“NDRC”), Ministry of Industry and Information Technology (“MIIT”), the Central government, the local governments of most provinces in China, and other related authorities recently announced a series of financing and debt policies and measures which are intended to support public services, people and businesses in mainland China affected by the disruption caused by COVID-19. This section provides an overview of such policies and measures.

Financing Facilities for Epidemic Prevention and Control

The Ministry of Commerce, PBOC, NDRC, MIIT and other related authorities issued a series of financing facilities schemes, which are intended to financially support enterprises that mainly engage in the manufacturing, transporting and sale of medical products, equipment and materials, and other living necessities for the prevention and control of the COVID-19 pandemic (“Core Enterprises”). The list of Core Enterprises will be determined by the provincial agency of NDRC and MIIT.

PBOC will grant loans to 9 national commercial banks and certain local banks in areas with severe disruptions due to the pandemic. These national commercial banks and local banks will then provide loans to the Core Enterprises on preferential terms. The interest rate of the loans granted by PBOC to the national and local banks shall be the one-year loan primary rate ("LPR") as of the end of last month minus 250 bps. Core Enterprises will obtain loans from the banks at a rate of no more than LPR minus 100 bps.

On top of the preferential loans, Core Enterprises will be entitled to an additional 50% interest subsidy from the Central government for the interests that are actually charged for obtaining these loans. The term of the interest that is covered by the subsidy shall not exceed one year.

Various debt and financing related measures are available to startups and small businesses. For example, individuals who have obtained loans for the purpose of entrepreneurship but are infected with COVID-19 may apply for interest subsidy and an extension of the loan for no more than one year. Banks and local governments may provide preferential treatment to those who have temporarily lost their source of income due to the pandemic.

Subsidies for Small and Micro Businesses

In addition to the actions taken by the Central government, the local governments of most provinces in China have also taken various measures to provide subsidies to small and micro-sized businesses, which are intended to help ease the financial pressures experienced by such businesses during this period of time.

The Beijing government encourages the banks located in Beijing to accelerate the approval of loans to small and micro businesses for the entire year of 2020. In particular, the approval rates for state-owned large-sized banks shall increase for no less than 20%. The approval rate for businesses seeking to borrow further loans without having repaid the principal of previous loans, shall increase to at least 20%.

Numerous small and micro businesses have experienced a complete shut-down of operations or were required by the government to continue operations while either being prohibited from dismissing staff, or maintaining the rate of dismissal of staff at a minimum. To alleviate the financial pressures experienced by such businesses, the government has (i) exempted payment of rent for real estate owned by state-owned entities and used for manufacturing purposes for the month of February 2020, and (ii) reduced the rental payable for lease of office spaces by 50% for the month of February 2020. With respect to the leasing of other properties (i.e. property not owned by state-owned entities), the landlords of such properties are encouraged to reduce the rental payable by the relevant small and micro-sized businesses. The Beijing government will provide subsidies to landlords to compensate for the exemption or reduction in rent.

The Beijing government has also announced that subsidies will be provided to certain industries that are severely affected by the pandemic. Ski resorts and ice skating resorts will receive subsidies for payment of electricity and water supply bills. Travel agencies will be refunded the full amount paid for security funds, provided that such refunded amount will be repaid by the travel agency to the government after the pandemic. Convenient stores and small-sized restaurants will be entitled to rental subsidies for their store and restaurant premises.

Taxation

The Ministry of Finance (“MOF”), the State Administration of Taxation (“SAT”) and the General Administration of Customs (“GAC”), together with provincial and local governments have recently announced a series of tax relief and preferential treatment policies and measures which are intended to support public services, people and businesses in mainland China affected by the disruption caused by COVID-19. This section provides an overview of such policies and measures.

Enterprise Income Tax (EIT)

For severely affected enterprises (including enterprises in the transportation, catering, accommodation, and tourism industry), the tax-loss carryforward period of EIT losses incurred in 2020 will be extended from the standard period of 5 years to 8 years.

The SAT issued rules to provide specific EIT preferential treatments to support enterprises who contributed directly to the prevention and control of the pandemic. For instance, where investments were made in equipment for the purpose of expanding production capacity of key suppliers related to COVID-19 protection (e.g. masks and other medical or protective supplies), a 100% expensing deduction would be provided for such investments made. This can be compared to the current EIT rule, where equipment with a unit value equal to, or more than RMB 5 million, is required to be amortized over a few years rather than expensed at the year of purchase. This new policy therefore encourages enterprises to increase investment by having their tax payments deferred.

Furthermore, EIT deduction is permitted for cash donations or donations in kind. Donations in kind must be through charitable organizations or people’s governments at or above the county level, and be directly provided to the hospitals responsible for epidemic prevention. If it were not for this policy, EIT deduction for charitable contributions would otherwise be subject to an annual quota calculated based on the taxable income of an enterprise.

Individual Income Tax (IIT)

In parallel with the EIT policy, a full IIT deduction is permitted for donations of epidemic prevention and medical treatment, which would otherwise be subject to an annual quota. Furthermore, frontline medical staff working to combat the pandemic are exempted from paying IIT on their bonuses and subsidies received.

Customs Duty, Value Added Tax (VAT) and Consumption Tax

To encourage importation, the customs duty rate for certain goods originating in the United States is reduced by 50%. From January 1 to March 31, 2020, imported materials donated for epidemic prevention and control are exempted from customs duties, import VAT, and consumption tax. No consumption tax is imposed on imported materials to prevent and control the new coronavirus epidemic, including imported materials that originate in the United States.

In addition, businesses in public transportation, transportation for emergency supplies, and other essential medical services are exempted from VAT until otherwise notified by the SAT. Moreover, donations in kind related to epidemic prevention and control are also exempted from VAT, consumption tax, and other surtaxes.

Other Measures

On top of these tax policies introduced by the Central government, local governments have also set out additional policies. Such policies include, among others, cutting real estate tax and urban land use tax for enterprises with funding difficulties/small and middle-sized enterprises. We expect more relief and policies to follow at the central and local levels in a later stage.

It is our understanding that some of the above measures are more likely to be relevant to your business needs than others. For example, some are targeted at small- and medium-sized businesses only. However, if there are any particular support mechanisms that you would like further information on (whether directly or indirectly applicable) or would like to discuss then we would be happy to do so. We will also continue to update this note with further guidance as and when it becomes available.