POWER LUNCH SERIES CHINA LEGAL UPDATE - SHANGHAI, JULY 2020 - DAWO
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Power Lunch Series
-
China Legal Update
-
Shanghai, July 2020
Da Wo Law Firm Shanghai was pleased to present the Legal Power Lunch Series in collaboration with BLCC Hong Kong and several other Chambers of Commerce in Shanghai, Beijing, and Hong Kong. The three episodes in the Series were interconnected and intended to update the business community on the changing corporate legal landscape of China. Our aim was to take the participants through the process, from business disruption to business adaptation, discussing corporate agility, data mobility, and foreign investment opportunities. China is navigating the storm caused by the pandemic by creating a corporate legal regime which is welcoming for foreign investment and reflects China’s determination to further open to the rest of the world. We hope you enjoyed the Legal Power Lunch Series brought to you by DaWo Law Firm Shanghai. Please find enclosed the presentations of our speakers for your convenience.
BUSINESS DISRUPTION & COVID China Legal Update - Episode 1
4 PHASES
PRE-COVID LOCKDOWN POST-LOCKDOWN FUTURE
JANUARY JANUARY 24TH - APRIL - NOW Q4 2020 - 2021
MARCH 24TH
Second wave
New Foreign Emergency level 1 Level 2 - 3
expected ?
Investment Law
Border reopening ?
Focus on
MANAGING A CRISIS Employment regulations
SITUATION Prohibition to terminate
employment
Emergency Regulation by levels and special administrations Remote working
Emergency levels 1 to 3
Level 1: January to April Reduced salaries to legal
Special administration set up minimum
Employee secondment
Flexible approach to emergency measures
Governement support
Progressively handled at local level
measures: tax relief, social
Regulations adapted to specific situations security relief...
requirements
SWIFT REACTION THROUGH
REGULATION
IMMIGRATION
TAX INTELLECTUAL COMMERCIAL CORPORATE IMMIGRATION
PROPERTY
Exemptions from Popularity of Increased scale of Simplified Suspension of
individual income tax, online courses and fiscal deficit registration entry into China
Registration fees & video webcasts Focus on "Six procedures by foreign
deductions of induced surge in stabilities" and "Six Encouraged online nationals
expenditures trademark Guarantees" formalities Two-months visa
exemptions, preemptive Digital and street- Acceptance of official extension
Extension of the time registrations stall economies documents' copies
limit for loss carry- New regulations in benefited from the Encouraged use of e-
forwards for firms in the video epidemic as well as chop and e-business
sectors in difficulty webcasts market waste sorting licenseFOR THE PAST 3 8243
MONTHS Bankruptcy filed between
January 1st and April 15th
COMPANIES RESTRUCTURE AND LAY-OFF
Important trend in the last weeks
Yet those business were already not in good shape before
(fashion retail, hotels, restaurants...)
In general manufacturing is not hiring or replacing employees, yet
no surge in lay-offReshaping companies after COVID
Bankruptcy Liquidation Restructuring
The COVID crisis
put Procedures Easier than Flexible option
mismanagement insufficient bankruptcy Cost efficient
issues in daylight Supreme Settlement Reflection of the
Investors are more Court issues raised
reluctant than officially during COVID
before
reprobates
Overall, a recovering economyWHAT IS COMING ?
TRAVEL BAN EASED, OPPORTUNITY TO SHANGHAI,
NOT LIFTED LOCALIZE BUSINESS SELECTIVE OPENING
IN CHINAAN UNPRECEDENTED CRISIS
Compared to the 2008's financial crisis, the COVID epidemic
is the first crisis to affect China to its core.
THAT COULD PUSH SHANGHAI AS A FIRST-
TO CLASS FINANCIAL HUB
A rebound is already observed, that could prompt China to
CONCLUDE make Shanghai an International Financial Hub.
AS REFLECTED BY LEGAL UPDATES
The rapid evolution of regulation under this crisis
highlighted the need to follow legal updates, as a tool to
better understand Chinese economy.DATA COMPLIANCE DEVELOPMENTS China Legal Update - Episode 2
TO UNDERSTAND DEVELOPMENTS:
BEFORE, WHILE & AFTER COVID
Pre-Covid Epidemic Post-Covid
JANUARY FEBRUARY - NOW Q4 2020 - 2021
• Resumption of
• National push toward • Emergency regulations
important projects
data protection and • Issues regarding contact
• Update of the
compliance tracing
legislative frameworkPersonal
Information Security Specification
Guidance
A PATCHWORK OF Measures
• Effective from 1 May 2018 notices
REGULATIONS • This non-binding guideline contains
detailed requirements on data handling
and data protection.
Cybersecurity
China's data protection framework is Law
pieced together from various rules • Effective from 1 June 2017
contained in a number of different laws, Technical
• First national framework for
comprehensive regulation of
measures and regulations. standards
electronically stored data
The three key texts:
- Cybersecurity Law
- The Personal Information Security
National
Specification Security
- National Security Law Law Regulations
National
standardsStrengthening the Framework
Formulating a comprehensive
China, like other countries, views data
law related to this has
as a nationally strategic resource. As
been on the NPC’s legislative
such, it has been aggressive in creating
agenda since September 2018, but
a national cyber/data protection
it has not yet settled on draft
framework
language. We expect it will soon.Focus on Tracing
MANAGING A CRISIS
First, handled on a provincial level by
Emergency Regulations on data compliance specialized teams
On 9 February 2020, the Office of the Central Cyberspace Affairs Commission issued the Notice on Protecting
Personal Information and Using Big Data to Support Joint Prevention and Control (the CAC Notice), further
clarifying various personal information protection matters related to the COVID-19 outbreak.
Then, handled at local level to add
effectiveness and coverage
New approaches to emergency measures
In addition, contact tracing apps were
used to automate containment and
• Handled at local level
• Regulations adapted to specific situations: contact tracing apps mitigation effortsIssues surrounding personal General issues regarding contact tracing : transparency, visibility, purpose, consent, scope
information protection related to
Covid-19 contact tracing
What kinds of employee personal information did companies collect during COVID-19 outbreak?
Under what circumstances must companies collect and provide employee personal information to a third party?
What about employee consent? Does a legitimate emergency need override the need for consent?
Contact tracing impacts the lives of
everybody in China, and we saw several
concerns emerge during the epidemic,
Under what circumstances may companies collect and use personal information of employees?
particularly in the context of employment.
What about remote work? How can we ensure personal information protection in that context?Known additions to China’s cybersecurity framework
New version of the National New Civil Code Data Security Law
Standard
Personal Information Security
Specification (“2020 PIS”)New Version of the
Personal Information Security Specification
2 0 2 0 P I S - UP DATE
• Issued on 6 March 2020.
• The 2020 PIS will come into force on 1 October 2020.
• Highlights
• Consolidates definitions and increases scope of protected personal information
• Defines ‘consent’ – specific, informed, freely given, by affirmative action or passive act
• Expanded obligations on third-party processors
• Expanded requirements for data breach notification
• Enhanced biometric protection
• ‘protection/privacy by design’Right to Privacy
For the first time, stipulates that the right to privacy is part of
approved on May 28, 2020 recognized “personality rights.” Lays out legal bases for
protecting privacy.
will take effect January 1, 2021
CIVIL CODE
P e r s o n a l Info rmat io n To r t L i a b i l i t y
Sets out guidelines for processing of personal information (collecting, Because privacy/personal information protection is now
storing, using, transmitting, providing, and publicizing) people’s considered an inherent personality right, and the civil code
personal information. Extends protection to an even wider array of provides for tort liability for violations of civil rights, it follows
personal information than recognized before. Founded on that infringements on privacy and personal data will carry tort
considerations legality, necessity, and limitation in scope. liability.Currently only a draft (not yet implemented)
On July 3, 2020, the Standing Committee of the National People’s Congress (NPC) published
a Draft Data Security Law (Draft DSL) for public comment through August 16, 2020
5 1 articles across 7 chapters
DATA General Principles, Data Security and Development, Data Security System, Data Security
Protection Obligations, Security and Opening of Government Affairs Data, Legal Liability and
Miscellaneous
SECURITY MAIN POINTS
• Focused on national security
• Controversial extra-territorial application
• Tiered classification system
LAW • Data not covered by the draft DSL:
⚬ Military data, personal information, and state secrets will be covered by
separate regulations.
• Security assessments
• Data protection obligationsChina underwent an unprecedented national crisis earlier
this year, and with that in the background, major changes to
the CSL framework kept coming.
The response to the crisis included, among numerous other things, the
rapid development and deployment of sophisticated tracing
applications.
China is intent upon shoring up its cybersecurity framework,
as seen through the constantly expanding, more and more
To sum up… comprehensive body of law.
Even though large parts of the framework are not yet fully effective, we
still recommend that businesses take a proactive approach in
addressing the requirements found therein. To put it simply, China’s
Cybersecurity/Data Compliance framework is not going away, and it will
only become more impactful as time goes on.
Feel free to contact us if you wish to know more.HAINAN FTP: STEP TO THE FUTURE China Legal Update - Episode 3
CONTENT
Introduction
Elements Comparisons Q&A
• Trade • FTP v. Shanghai FTZ • Your Concerns
• Personnel • FTP v. Hong Kong • Our Answers
• Service
• CapitalTimeline on Hainan’s development
April 1988 January 2009
Creation of the Province of Hainan Creation of the International Tourism
Establishment of the Hainan Special Economic Zone Island
1992-1994 April 2018
Real Estate Bubble Growth and Burst Conceptualization of the Hainan Free
Trade Zone
February 1996 June 2020
One Province and Two Lands (Province of New Promulgation of the
Industry, Lands of Tropical Agriculture and Tourism) Master Plan of the Hainan Free Trade PortWhat is a Free Trade Port/Zone?
Free Movement of
Goods People
Services CapitalTRADE: Liberalization and Protection
Open up “Front Line” & Regulate “Second Line”
• FTP and Overseas Markets: Positive Lists of Imported Taxable Goods and Negative Lists
of Goods Restricted or Prohibited from Import and Export
• FTP and Domestic Markets: Better Procedures & Document Specifications for Customs
Clearance
Tax Incentives - Routine
• Two Step Plan for Zero Tariff Policy in Hainan FTP
• Routine Supervision Exemption for Zero Tariff Goods
• VAT and Consumption Tax Exemption for Imported Goods Purchased by Island ResidentsTax Incentives - Unique
EIT Rate Reduced to 15% for Enterprises in Encouraged Sectors with
Substantial Operations in Hainan FTP
• Encouraged Sectors:
• All Encouraged Industries in 3 Catalogs (Catalogue of industrial restructuring, Foreign
Investment Catalog, Hainan FTP Catalogue);
• 60% Revenue Requirement.
• Substantial Operations (vs. Horgos in Xinjiang):
• Effective Management in Hainan FTP;
• Overall Management and Control of Operations, Personnel, Finance and Assets.Hainan vs. Horgos
Hainan Horgos
Horgos
EIT Exempted for First 5
EIT 15% Years, 50% Reduction for
Next 5 Years
Substantial Operations Offshore Mailbox Tax
Required Heaven
Encouraged and Struck Down in 2018,
Promising for the Preferences End in Dec
Future 2020
Aiming to Build a Proven to be a Tax Hainan
Comprehensive FTP Legislative LoopholeTax Incentives - Unique : Substantial Operations
Customs Duties Exempted for Domestic Market Oriented Goods Originally Made
in Hainan or Through Imported Materials Processing, if 30% Value Increase is
Made in Hainan FTP.
• Unprecedented: Much More than a Normal Free Trade Zone
• Huge benefits: Examples Such as Imported Cars (15% Rate), Imported Beef and
Steaks (12%-20% Rate)
Immediate Expensing - Fixed & Intangible Assets, except Real Estate
Effective IIT for Special Talents Capped at 15% - 183 Days RequirementPERSONNEL: Better Mobility Attracting
Talent
Expanding the Scope of Visa-Free Entry
• More Inclusive Reasons, Such as Business, Family Visit,
Forums, Medical Treatment, Athletics, Etc.
• Expanding the Visa-free Entry Application Channels
Preferential Policies for International Talents
• Category R Visa for Foreign Class-A Talents and Urgently
Needed Talents
• Foreigners Can Become Legal Representatives of Statutory
Institutions, Public Institutions, and State-Owned EnterprisesFreer
SERVICE: Next Step for
产业Open-Up International
• Develop Insurance Industry & Enhance International Cooperation Services
• Encourage Setup of Foreign-Invested Enterprises in Securities,
Finance Funds, or Futures
Impacts on VIE
• Open up Value-added Telecom business for Foreign Investment Structure for
• Open up Basic Telecom business for Foreign Investment in a Safe
Telecom and Orderly Fashion China TMT
Companies Listed
Overseas ?
• Summarize the Experience of Pilot Regional Medical Centers and
Support the Establishment of Regional Medical Center
Healthcare • Introduce High-quality Medical Resources from Abroad
• Allow the Setup of Branch Schools by Overseas Universities and
Vocational Colleges
Education • Encourage Cooperative Operation of Educational InstitutionsCAPITAL: Flexibility for Capital Flow
Facilitate Foreign Investment
• Formulate Special List of Market Access and Foreign Investment
At t r a c t F o r e i g n “Negative List“
Capital
• Simplify Approval & Regulation System and Emphasize “Fair
While
Competition”
Maintaining
Cross-border
Capital Control Facilitate Cross-border Capital Flow
• Introduce Multifunction Free Trade Account System for Capital Flow
• More convenient foreign debt registration process
• Prudent Regulation for Cross-border Financing and TransactionHainan FTP Shanghai FTZ
June 1, 2020 September 29, 2013
Strong Tax Incentives No Special Tax Incentives
More favorable Negative List Special Negative List
Hainan FTP
vs. Limited capital flow freedom Limited Capital Flow Freedom
Shanghai FTZ
A Market Itself with 9 Million
More Like a Business Place
People
Stronger Infrastructure,
Pilot Program Transport, Financial and Talent
Resources
What is your decision?HAINAN FTP v. HONG KONG
“Hainan FTP’s status is different from Hong Kong. They have different focused industries.
There should be more complementation than competition. Hainan FTP will not bring shocks to Hong Kong.”
——Lin Nianxiu, deputy director of National Development and Reform Commission
Hainan FTP Hong Kong
A Free Trade Port within China A Separate Customs Territory
Tourism, Trade, Modern Services & High-Tech Capital Market, Trade, Real Estate &
Industries Professional Services
Next Step in China’s Developed Capital Market
Unprecedented Open-up Policies Mature Regulation System
Limited Capital Flow Free Capital Flow
Pilot Program, Still Developing Still a Step away from Mainland MarketCOMPLETELY NEW FREE TRADE PORT
Hainan Free Trade Port is completely new with so many
unique preferences that are not available elsewhere in
China.
TO SUBSTANTIAL OPERATIONS IS THE KEY
Substantial operations is heavily emphasized as Hainan
CONCLUDE FTP definitely aims to truly develop local economy
instead of being a corporate mailbox.
DIFFERENT FROM SHANGHAI AND HK
Hainan FTP is still significantly different from Shanghai
and HK. A holistic evaluation is needed to decide where
to invest.This publication is copyright @2020 by DaWo Law Firm Shanghai. No part of this publication
may be reproduced without prior permission. The information provided in this publication
does not, and is not intended to, constitute (up-to-date) legal advice and is for general
informational purposes only.You can also read
