Local Laws

Beijing

Notice on On-line Execution of Sale and Purchase Agreement of Real Property (“Online Execution Notice”) (JingJianJiao [2008] No.628, promulgated by Beijing Construction Commission on 24 Sep. 2008)

The Beijing Construction Commission decided that after October 15, 2008, sellers and purchasers of previously owned or secondhand houses (the “Stocking House”) must execute their Property Ownership Certificates on-line before they can transfer the title to the property Specifically, the seller and purchaser must go to the local housing administration’s service counter and fill out the Stocking House Purchase and Sale Agreement Information Form (for deals made directly by persons). Once, they submit this form the staff of the housing authority will print out the standard purchase agreement for a Stocking House. If intermediary brokers or agents are buying or selling a Stocking House or if a direct buyer or seller agrees to settle funds by special account then a broker or an agent will be needed for the on-line execution of the Stocking House Agreement. Starting on January 1, 2009, the real estate registration authorities will require a real estate transaction’s parties to execute an on-line agreement with their transfer registration application. However, the transfer registration can be directly submitted to regulatory authorities, as long as, the parties to the transaction have executed it, in writing, before December 31, 2008.

KW Comments: This Notice is intends on to promoting on-line execution of real estate purchases. It strengthens regulatory supervision of transactions in Stocking Houses. This Notice will be able to make these transaction more efficient because it will make the transaction itself more transparent, which will help prevent a seller from selling one property to two different purchasers, and make the transaction smoother for all of the parties. Furthermore, once the information regarding the transaction is placed on-line it can more easily be shared by different governmental departments, and the parties to the transaction will not need to repetitively submit the same information to different departments.

Chongqing

The Notice Issued by the Chongqing Finance Bureau Concerning the Adjustment of the Deed Tax Policy during the Trade of Real-Estate (“Deed Tax Notice”) (Chongqing Finance and Farming Tax (2008) No. 52)

The Chongqing government issued the Deed Tax Notice to reduce the tax burden on the purchase of residential houses.

Specifically, the Notice aims to reduce the deed tax in three different ways for three different time periods. First, the tax is reduced for individual first time buyers of whom the residential house no larger than 90 square meters, during the 2008 Chongqing Autumn Housing Fair (from November 1st to November 6th, 2008). Second, from November 7th through December 31st, 2008, the deed tax will be reduced on Real-Estate Exchange held by each district or county in the Chongqing government’s jurisdiction. Third, it will be reduced on all residential houses sold after November 7th, 2008 which are no larger than 144 square meters.

KW comments: The Chongqing government is attempting to reduce the taxes that individual purchasers must pay. However, we believe that these steps are not effectively energizing the stagnant real estate market. For example, even with the reduction in deed taxes, the 2008 Chongqing Autumn Housing Fair saw a decrease in the total number of houses purchased and the prices paid for those houses when compared with the sales of 2008 Chongqing Spring Housing Fair. Therefore, we are waiting to see what impact of this measure upon the sluggish housing market will be.

Zhejiang Province

Opinions of the People’s Government of Zhejiang Province to Accelerate the further Development of a Modern Logistics Industry (“Opinions on the Logistics Industry”) (No.〔2008〕64 of the People’s Government of Zhejiang Province, October 21, 2008)

The Opinions on the Logistics Industry specifically states the guidelines and objectives for the logistics industry, and it establishes a series of rules to guide and promote the development the industry. One step the Opinion takes is to vigorously push for the development and improvement of the modern logistics industry. It states that logistics market access and government supervision will be broadened and the standardized. The Opinion pushes for developing a modernized way to distribute information in the logistics industry. In addition, the Opinion states that the regulatory charges and fees for modern logistics shall be adjusted and standardized. Furthermore, there will also be acceleration in the logistical production reforms. Finally, the logistics markets will be cultivated and improved by promoting worker training and the recruitment of more talented workers.

Another goal of the Opinions on the Logistics Industry is to optimize logistics industry’s development patterns by focusing on planning and guidance work for urban and rural develop of the industry. Finally, it will push for accelerating the building of modern logistics centers.

The third priority of the Opinion is to open up more of the logistics industry for Hong Kong, Macao, and Taiwan by strengthening cooperation. Furthermore, the Opinion also pushes for more cooperation in the Yangtze River Delta region.

The fourth ambition of the Opinion is to increase support for the logistics industry’s fiscal and tax policies, provide increased tax benefits to promote the industry, and expand the logistics industry’s financing channels.

The fifth objective set out in the Opinion is to strengthen the logistics industry’s organizational leadership. Specifically, the Opinion will promote the establishment of a uniform statistics system for organization, management, self discipline, and comprehensive coordination.

KW Comments: The Opinions on the Logistics Industry will push for the rapid development of a modern logistics industry. A modern logistics industry is strategically important to improving the economic operational quality and performance of the economy, the distribution of the PRC’s resources, improving the PRC’s investment environment, and strengthening its overall economic competitiveness.

Shandong Province

Opinions on Further Improving the Development Environment of Small and Medium Enterprises (the “Small and Medium Enterprise Opinions”) (Qing Fa (2008) No. 16, promulgated jointly by the C.P.C. Qingdao Municipal Committee and the Qingdao Municipal Government. Effective as of October 24, 2008)

The Qingdao Municipality, the C.P.C. Qingdao Municipal Committee, and the Qingdao Municipal Government jointly promulgated the Small and Medium Enterprise Opinions to improve the developmental opportunities for small and medium enterprises (“SMEs”). Furthermore, they wish to promote the sustainable and sound development of SMEs, and they would like to upgrade the comprehensive economic strength and level societal of development.

The Small and Medium Enterprise Opinions lay out 20 specific steps within 5 broad goals that will help develop the SMEs environment, including, a high quality and efficient administrative environment, a healthy and regulated market environment, a diversified and creditable financial environment, and a favorable and positive entrepreneurial environment that will be practical and enlightened. The Qingdao Municipality plans on using the rules outlined in the Opinions to reduce the obstacles entrepreneurs face when they are trying to establish a SME. Specifically, the municipality plans on pushing the “two pilot” system; the pilot opening system and the pilot production system. The Qingdao government will also allocate collectively issued bonds for SMEs to help reduce the difficultly many SMEs have with finding financing. There is an estimated 30,000,000 RMB being set aside for SME allocation. Specifically, each SME that successfully issues bonds will be allotted a 500,000 RMB subsidy. While private equity funds or venture capital institutions that invest in Qingdao SMEs could be awarded 100,000RMB for each investment they make in Qingdao Furthermore, the Qingdao Government will reduce the number of administrative approvals and inspections SMEs need, and it will regulate ranking activities, obtaining the required qualifications, and awarding honors to enterprises more efficiently.

KW comments: SMEs face significant development pressure due to the foreign and domestic economic downturns. The promulgation of the Small and Medium Enterprise Opinions will help provide SMEs the support they need to avoid difficult positions, and place themselves in a position to have sound, long term development. Additionally, these measures decrease the requirements an entrepreneur must meet to be able to establish a SME, and reduce the steps that an entrepreneur must take to create a SME.

Tax

1.The Interim Regulations of the People’s Republic of China on Value Added Tax (Promulgated by Order No. 134 of the State Council of the People’s Republic of China on December 13, 1993 and amended and adopted at the 34th executive meeting of the State Council on November 5, 2008)

The State Council amended the Interim Regulation of the People’s Republic of China on Value Added Tax (“Amended Interim Regulation”) in four major ways:

First, the Amended Interim Regulations allow tax credits built up by buying fixed assets to be used to offset the output Value Added Tax (“VAT”). This change allows companies that invest in modern equipment to reduce their tax burden.

Second, the Amended Interim Regulations plug a tax loophole by excluding the VAT on individual consumable products that can be used for personal use, including, small passenger vehicles and yachts that are subject to consumption tax, and are not related to technological developments.

Third, the Amended Interim Regulations decrease the VAT rate on small-scale taxpayers. The original Interim Regulations stipulate that small-scale taxpayers that manufacture goods pay a VAT of 6%, and small-scale taxpayers that provide non-manufacturing services pay a 4% VAT. The amended version takes into account the fact that small-scale taxpayers often provide both manufacturing and non-manufacturing services, and the fact that it is difficult to draw a line determining whether a small-scale taxpayer should be considered a manufacturing or a non-manufacturing business. In turn, the Amended Interim Regulations discontinue the different VAT tax rates for small-scale taxpayers by implementing a uniform 3% VAT rate for them.

Finally, the Amended Interim Regulations extend the deadline for paying VAT from ten days to fifteen days. The Interim Regulations also clarify how outbound taxpayers should confirm the tax they owe with tax withholding agents, and the time and place a tax withholding will be assessed.

KW comments: The Amended Interim Regulations improve the way the VAT is implemented by eliminating double taxation, decreasing the rate small-scale taxpayers are charged, balancing the tax burden on general VAT taxpayers and small-scale VAT taxpayers, and it assists the development of the small and medium enterprises (“SME”). Finally, the Amended Interim Regulations make it more convenient for taxpayers to comply with the VAT by extending their time limit to pay the tax.

2.The Interim Regulation of the People’s Republic of China on Consumption Tax (Promulgated by Order No. 135 of the State Council of the People’s Republic of China on December 13, 1993 and amended and adopted at the 34th executive meeting of the State Council on November 5, 2008)

The State Council amended the Interim Regulation of the People’s Republic of China on Consumption Tax (“Amended Consumption Tax”) in two ways:

First, the Amended Consumption Tax updates the 1994 consumption policies. For example, products like gold, silver, platinum, and diamond jewelry will be taxed on the price of the item when it was sold and weight of the materials used to make the products. Furthermore, the tax rate on cigarettes and spirits was adjusted.

Second, the deadline for paying the consumption tax has been extended from ten days to fifteen days, and the consumption tax collection centers have been adjusted. This adjustment in the payment deadline was made to keep it in-line with the changes in the VAT.

KW comments: The amendments to the consumption tax were made because it is one of China’s three major taxes, and it needed to be changed to keep up with the amendments to the VAT. At the same time, the extension in the consumption tax’s compliance time makes it more convenient for taxpayers to follow the law

3.The Interim Regulation of the People’s Republic of China on Business Tax (Promulgated by Order No. 136 of the State Council of the People’s Republic of China on December 13, 1993 and amended and adopted at the 34th executive meeting of the State Council on November 5, 2008)

The State Council amended the Interim Regulation of the People’s Republic of China on Business Tax (“Amended Business Tax Regulation”) in four aspects:

First, the State Council changed the location that the business tax will be calculated. Now, taxpayers are taxed where their business is located, instead, of where they provide the taxable services.

Second, the business tax will be no longer levied on the balance of an “onlending” loan business.

Third, the levy scope was deleted from the tax rate table attached to the original Business Tax Regulation. This deletion was made because it was difficult to list the scope of levies for all of the items subject to the business tax. The Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) will now stipulate the specific range of the business tax.

Fourth, the Amended Business Tax Regulation extends the deadline for paying the business tax from ten days to fifteen days. This deadline change was made to keep the business tax in-line with the deadline for paying the VAT.

KW comments: The Amended Business Tax Regulation clarifies where the business tax should be calculated, makes business tax payment more convenient by extending the payment deadline, and it improves the regulatory authorities’ service standards. Moreover, the Amended Business Tax Regulation states how outbound taxpayers should confirm the tax they owe with tax withholding agents, and the time and place a tax withholding will be assessed.

Enforcement Proceedings in the Civil Procedure Law

The Interpretation of the Supreme People’s Court on Several Issues regarding the Procedures For Enforcing the Civil Proceedings Law of the People’s Republic of China (Adopted at the No. 1452 meeting of the Judicial Committee of the Supreme People’s Court on September 8, 2008, Interpretation No. 13 [2008] of the Supreme People’s Court)

The Procedures For Enforcing the Civil Proceedings Law of the People’s Republic of China (the “Interpretation”), promulgated by the Supreme People’s court and effective on January 1, 2009, establishes that when a party submits a petition to enforce a judgment on a piece of property, he or she must provide the court evidence of the existence of the property the judgment is against. The Interpretation also clarifies the procedure a party must follow when he or she wants to enforce a judgment against the other party, and prevent him or her from leaving China under Article 231 of the Civil Proceedings Law. It establishes that a party must provide a court with jurisdiction over the judgment a written petition requesting the court prevent the other party from leaving China. If the party that is being restricted is an organization, the court can prevent its legal representatives, key personnel or any other individuals that have a direct influence on assets that could be used to pay the judgment from leaving the country. Furthermore, the parties subject to the restriction on travel outside of China may seek to be exempted from this restriction by providing a guaranty for the fulfillment of the judgment, or by obtaining the party enforcing the judgment’s consent for their travel. Finally, if the party subject to enforcement of the judgment does not have or has limited capability for civil conduct his or her legal agent can be prevented from traveling outside of the PRC.

KW Comments: The Supreme People’s Court issued this Interpretation to effectively apply the 2007 amendments to the Civil Proceedings Law. In the PRC, creditor rights depend heavily on the regulations implementing the laws, and this Interpretation gives individuals that have been successful in court another weapon to insure that their judgment is enforced by preventing the losing party from leaving the PRC.

Venture Capital

Guiding Opinions for Regulating the Establishment and Operation of a Venture Capital Direction Fund （“Guiding Opinions”）

The Chinese government established the Venture Capital Direction Fund (“Fund”) to guide public funds towards supporting the development of venture capital enterprises. The Fund targets enterprises incorporated in the People’s Republic of China (“PRC”) that have completed the Interim Measures on the Administration of Venture Capital Enterprises’ filing procedures. The Fund provides support to these enterprises by: (1) purchasing shares; (2) providing financial guarantees; (3) and providing more investment. However, the Fund does not directly participate in the venture capital business.

Local government authorities, at a municipal, district, or higher level, control the Fund’s investment activities. This local authority is based on necessity and the financial status of local venture capital businesses. The Guiding Opinions establish that the Fund is an independent corporation in which the relevant regulatory authorities designate people (“Designated Persons”) to be responsible for investing and managing the Fund’s assets. These Designated Persons organize the Fund’s board of directors, and this board has the right to operate the Fund and assume liability for the actions of the Fund.

KW comments: The Guiding Opinions provide improved guidelines for establishing and operating the Fund. They clarify the Fund’s operating principles and methods, as well as, its management and risk controls. The Fund expands the resources available for venture capital enterprises, and it encourages them to invest in start-up enterprises during their seed and early development stages.

Real Estate Regulations

1.Notice on the Adjustment of the Rate of Taxation in relation to Real Estate Transfers (“Real Estate Tax Adjustment Notice”) (CaiShui No. [2008] 137, promulgated by the PRC Financial Department and the State Tax Bureau on 22 Oct. 2008; to be implemented from 1 Nov. 2008)

The Real Estate Tax Adjustment Notice establishes that the first-time common residential home buyers will have their tax liability reduced. First-time residential home buyers that purchase a home that is less than 90 square meters will have their Deed tax cut to 1 % of the purchase price. To insure that this reduction is properly implemented, regulatory authorities in charge of residential construction will issue first-time common residential housing-purchase certificates at the site of the home being purchased. Furthermore, seller and purchaser stamp duties on first-time common residential homes has been exempted. Finally, the Land VAT will no longer levied on a seller who sells a home to a first-time common residential home buyer.

KW Comments: This Notice has several conditions attached to its application: (i) The purchaser must be an individual to receive any of the benefits; (ii) it must be his or her first-time purchasing a home; and (iii) the home must be used for common residential housing. The standards stipulated in the Opinion on Stabilization of Housing Prices (GuoBanFa [2005] No.26), approved jointly by the PRC Construction Department and six other central governmental departments, establish that common residential housing means; (i) living spaces in a community where the plot ratio is no less than 1.0; (ii) the area of a single unit is no more than 120 square meters; and (iii) the actual price paid for the specific house is no higher than 1.2 times the average price of an common house built on land of the same ranking.

2.Notice on the Adjustment of Interest Rates on Loans and Deposits of Individual Housing Funds (“Interest Rate Adjustment Notice”) (JianJin [2008] No.207, promulgated by the Department of Housing and Rural-Urban Construction on Oct.31, and implemented immediately)

The Interest Rate Adjustment Notice establishes that the interest rates charged for loans, and paid for deposits of individual housing funds is to be reduced by 0.27%. Specifically, starting October 27, 2008, the interest rate for loans of five years or less was reduced to 4.05% from 4.32%; the interest rates on loans longer than five years were reduced to 4.59% from 4.86%; and starting October 30, 2008, the interest paid on deposits made within the last year was reduced from 3.15% to 2.88%.

KW Comments: Starting in October 2008, the real estate market entered a recession. The Chinese government is attempting to stimulate the domestic real estate market by approving a series of preferential measures to promote real estate market activity. Furthermore, the central government has authorized the local governments to adopt even more preferential policies when specific circumstances warrant such action.

3.Notice on the Supervision of Trust Companies in relation to the Real Estate Market and the Securities Industry (“Trust Company Notice”) (YinJianBanFa [2008 ]No.265, promulgated by the General Office of the China Banking Regulatory Commission on 28 October 2008)

The Trust Company Notice governs trust company action in three ways. First, trust companies cannot provide working capital loans to real estate development enterprises. Second, trust companies cannot fund real estate companies by purchasing assets from a real estate company with its promise to buy-back the assets the trust company purchased. Finally, trust companies cannot loan money to real estate companies to pay for land premiums. In addition to the requirements on trust companies, this Notice reminds trust company lenders that they must properly supervise the loans they make to construction companies to make sure their loans are not being used for real estate development.

Furthermore, the Trust Company Notice stresses the fact that lenders cannot loan money to real estate development projects, unless, the project has the four required certificates. Specifically, a project must have the Land Use Right Certificate, the Construction Land Planning Permit, the Construction Engineering Planning Permit, and the Construction Commencement Permit. This Notice also reiterates that trust companies should not loan money when the borrower is seeking a buy-back promise or is pre-selling houses with buy-back promises. Finally, the Trust Company Notice expressly states the standards real estate development projects must meet to be able to a receive loan. First, the developer must have, at least, 35% of the total capital needed for the investment into the project. Second, the developer must obtain all four of the required certificates for the project. Finally, the developer must have higher than Level II (inclusive) development qualifications.

KW Comments: The Trust Company Notice stands as an important reminder of what trust companies can and cannot do in the real estate market. This Notice strengthens the three basic conditions for providing real estate development loans. Yet, it does not change any of the current real estate development policies. Moreover, it prohibits the trust companies from making investments in real estate companies with buy-back provision, and it prohibits them from providing real estate companies working capital loans with buy-back provisions.