Now! China — Sept 2016

OUR INSIGHTS

• Application for Special Working Hour Scheme

TAX

• Clarification on Certain Value Added Tax Policies

CORPORATE ADVISORY

• New “5-in-1 Business Licence”

HUMAN RESOURCES

• Twelve Locations Announce Salary Increase Rate Policies for 2016
• Beijing, Tianjin and Hebei Recognise Same Work Permit for Eligible Expatriates

Application for Special Working Hour Scheme

An increasing number of corporates in China are applying for a Special Working Hour Scheme nowadays. What is it and why do they apply for it? What challenges do they face during application for this scheme? We will examine these issues in detail here.

Types of Working Hour Arrangements in China 
There is a need to understand the current types of working hour arrangements in China before examining the Special Working Hour Scheme.

Standard Working Hour Arrangement: This is the working hour arrangement under general situations. In China, the standard working hour period means 8 working hours a day for 5 days a week, which total 40 hours a week.

Flexible Working Hour Arrangement: As this arrangement does not stipulate the on or off duty times in each working day, the working hours under the arrangement are not fixed.

Integrated Working Hour Arrangement: This arrangement does not have any fixed number of working hours each day and working days in a week as long as the total number of hours worked in a week is 40. For example, the employee may work for 7 hours a day on weekdays and 5 hours on Saturday (total of 40 working hours in a week). Saturday would be considered a normal working day in this example.

Companies that wish to implement the flexible working hour and integrated working hour arrangements must apply to the Ministry of Human Resources and Social Security to be registered under the Special Working Hour Scheme.

Why do corporates want to apply for the Special Working Hour Scheme? 
Under the standard working hour arrangement, the employee must, and can only, work 8 hours. If overtime occurs, the company will incur additional costs in the form of overtime payments. Such a fixed arrangement may not be suitable in today’s increasingly complex economic environment because it might not be cost-effective for the business.

Companies registered under the Special Working Hour Scheme can overcome this challenge. Firstly, such a scheme is cost-effective because the company only needs to pay employees to work during time periods that best suit its business model. This significantly reduces overtime payments.

Secondly, it gives the company more flexibility to deploy manpower resources during periods when they would be more fully utilised.

The scheme may also benefit employees because its cost-effectiveness allows for more sustainable employment and reduces the risk of lay-offs or pay cuts. In addition, they would still be paid for overtime if they are required to work beyond their normal working hours.

Challenges during application for the Special Working Hour Scheme 
It is now much more difficult to apply for the Special Working Hour Scheme than in the past. Some companies had reportedly extended their scope of implementation of the Special Working Hour Scheme beyond what was considered “reasonable” to avoid overtime payments. Meanwhile, there has been an increase in public concerns over employees’ rights and work-life balance. Consequently, the government now strictly controls the approval process.

An example of an application process for the Special Working Hour Scheme in Shanghai is shown below:

• Company submits documents of its proposed Special Working Hour Scheme to local manpower bureau
• Local manpower bureau receives documents
• Local manpower bureau checks documents
• Application approval
• Company informed of application result
• Company announces successful application result to the public

Government officers would check the documents submitted during application very thoroughly and assess the accuracy, necessity and reasonableness of their contents. They may also request for more supplementary materials or return rejected documents.

Based on our experience and various cases, there are several common reasons why applications for the Special Working Hour Scheme may be rejected. These are explained below.

Failure to demonstrate a compelling need for the Special Working Hour Scheme 
The government officers may determine that the company can address its manpower challenges through other arrangements such as flexible office duty hours or shift duty adjustments. The company therefore needs to show that the Special Working Hour Scheme is its only solution.

Positions are not within the legal scope 
Laws and regulations stipulate specific positions that are covered by the Special Working Hour Scheme. Examples include the senior management team, outworkers, sales personnel, certain operators, and transport staff. If the company applies for positions that fall outside the legal scope, the application is likely to be rejected.

Absence of employee consent 
As mentioned earlier, there is an increase in public concerns over employees’ rights, which has attracted greater scrutiny from local authorities. Proposed changes in work arrangements would also affect the working conditions and labour contracts of employees concerned.

It is therefore necessary for the written signatures of such employees to be present in submitted documents proposing changes in work arrangements to indicate their support.

Absence of Proper Off Day or Leave Arrangements 
If the application does not indicate proper off day or leave arrangements to compensate for non-conventional working hours, it would be more likely to be rejected.

Abuse of Special Working Hour Scheme 
If the government officers determine that the proposals submitted during application amount to an attempted abuse of the Special Working Hour Scheme to extend employees’ working hours and avoid overtime payments, they would reject the application.

Companies should bear in mind that other parties are also involved in preparing the application for the Special Working Hour Scheme. For example, experienced professionals are needed to check the documents that would be submitted, assist in making a detailed implementation plan, or communicate with the employees concerned to gain their support.

Even if the application is successful, the company also needs to monitor implementation of the Special Working Hour Scheme to ensure that staff benefits are not negatively affected. This is essential as any staff complaints to the authorities may reduce the chances of successful future applications for renewal under the scheme.

Clarification on Certain Value Added Tax Policies

On 25 July 2016, China’s Ministry of Finance (MOF) and State Administration of Taxation (SAT) jointly released the Caishui [2016] No. 83 circular (Circular 83) to clarify the implementation of value added tax (VAT) policies for services provided under the Xinjiang International Grand Bazaar Project.

From January 1 to April 30 of this year, services provided under the Project were exempt from business tax. Circular 83 states that with the new VAT regime replacing the business tax in all sectors since 1 May 2016, such services shall be exempt from VAT instead from that date until 31 December 2016. Any VAT for such services paid in the period from 1 May 2016 to 25 July 2016 (when Circular 83 was issued) may either be refunded to taxpayers or credited against their future VAT payable.

Since 1 January 2016, incomes derived from the provision of finance and insurance agency services by China Post Group and its postal subsidiaries for financial institutions have also been exempt from VAT.

New “5-in-1 Business Licence”

To further simplify the enterprise registration procedure, the State Administration for Industry and Commerce and four other governmental departments recently issued a circular announcing a new “5-in-1 business licence”.

With effect from 1 October 2016, this will replace the existing “3-in-1 business licence” that also acts as the organisation code and tax registration certificates. In addition to these certificates, the “5-in-1 business licence” also incorporates the social insurance registration and statistics code registration certificates. Certificates previously issued separately from the “3-in-1 business licence”, but now included in the “5-in-1 business licence”, will remain valid until 1 January 2018.

Twelve Locations Announce Salary Increase Rate Policies for 2016

As of 19 September 2016, 12 locations in China have announced their salary increase rate policies for the year 2016, with most of the rates lower than those for 2015. The upper limits for salary increase rates have been reduced in all locations except Jiangxi province, while lower limits have been reduced or remained unchanged except in Beijing.

Among locations that announced their policies, many have been decreasing their salary increase rates in the last two years, mostly by 3–4% each year.

Compared with 2015, the smallest decrease in standard salary increase rate for 2016 is only 1% in Shanghai and Tianjin.

While the local statutory minimum monthly wages for citizens differ from city to city, employers also need to consider local salary increase rate policies that apply to them.

The local salary increase rate policies for some locations are shown below:

Beijing, Tianjin and Hebei Recognise Same Work Permit for Eligible Expatriates

Beijing, Tianjin and Hebei recently signed a cooperation agreement allowing work permits for expatriates of high management level positions issued in these three locations to be recognised among them. This means that such expatriates who hold a work permit in Beijing, Tianjin or Hebei no longer need to reapply for a new one if they change jobs to work in either of the other two locations. Their existing work permit would simply be transferred to the new location. The same also applies to eligible expatriates transferred by their companies from one of the three locations to work in another under the agreement.

The agreement is expected to facilitate expatriate employment management in the three locations.

Serving growing businesses since 1985, RSM in Singapore is the largest accounting, business advisory and solutions group outside the Big 4, with a total staff strength of over 950 in Singapore and 320 in China.

Our China Practice is dedicated to helping you venture into China smoothly and supporting you in navigating its complex regulatory and business environment.

As a member of RSM International, the world’s 6th largest accounting and consulting network, we also have a global reach of over 800 offices in 120 countries.

Website: https://www.rsm.global/singapore/

Email: [email protected]

Adrian Tan, Partner and Industry Leader, China Practice 
T +65 6594 7876 
[email protected]

Chan Weng Keen, Partner 
T +65 6594 7864 
[email protected]

Tan Lee Lee (Ms), Director 
T +86 21 6186 7602 
[email protected]

Yeo Lee Soon, Director 
T +86 10 8591 1900 
[email protected]