CEPA Q & A    廣東省外經貿廳答CEPA實施100問     TID: Frequently Asked Questions
	Question: We import tea leaves from Southeast Asia, then do simple packaging in Hong Kong before selling these products to Mainland importers. Can we apply for a CEPA Certificate of Origin to enjoy zero import tariff? Answer: This involves two issues. First, the Mainland 2004 tariff codes cover 374 zero-tariff products in the initial phase of CEPA, among which tea leaves is not included. If you wish to include tea leaves in the next phase of tariff elimination, you must submit your application to the Hong Kong Trade and Industry Department. But you need to bear in mind that CEPA zero-tariff applies only to goods manufactured in Hong Kong, and each product type has its own specific origin rules. For example, if tea leaves were added to the second phase of zero tariffs, origin rules would also have to be announced. However, it is unlikely that simple packaging will meet these requirements, because China has been vigilant in preventing foreign goods from being re-exported through Hong Kong to take advantage of zero tariff under CEPA.	2004/07/12
	Question: We are a logistics service provider looking to enter the Mainland market by setting up a wholly-owned enterprise under CEPA. Can we enjoy any tax incentives? Is there any preferential tax treatment in special economic regions such as Shenzhen? Answer: China provides a "two-year exemption and three-year reduction by half" income tax incentive for foreign-owned projects that fall under the "encouraged category." In addition, any state-owned, foreign-invested or private enterprise in the encouraged category in Shenzhen or western China can enjoy a preferential income tax rate of 15 percent. For the services sector, the income tax on foreign-invested enterprises of the encouraged category in Shenzhen is 15 percent, but it may be different in other places. Some development zones in Beijing or Shanghai may also offer special tax incentives. Your company should carefully study the local preferential tax policies of each area to make an informed investment decision.	2004/07/12
	Question: We operate wholesale and retail businesses in Hong Kong, dealing in pharmaceuticals. Now that CEPA allows Hong Kong companies to operate wholly-owned wholesale and retail services in China, can we engage in drug wholesaling and retailing in the Mainland? Answer: Since January 1, 2004, Hong Kong distributors can set up wholly-owned enterprises in the Mainland under CEPA. The Ministry of Commerce also abolished in April 2004 the asset and turnover requirements imposed on foreign-invested commercial enterprises. In other words, Hong Kong distributors, regardless of size, can operate wholly-owned businesses provided that they have obtained a "Certificate of Hong Kong Service Supplier." However, companies are still subject to the following restrictions on foreign wholesale and retail businesses. Foreign-invested wholesale commercial enterprises are prohibited from engaging in drugs, agricultural chemicals and agricultural films before December 11, 2004, and chemical fertilizers, finished oil and crude oil before February 11, 2006. Foreign-invested retail commercial enterprises are prohibited from engaging in drugs, agricultural chemicals, agricultural films and finished oil before December 11, 2004, and chemical fertilizers before December 11, 2006. Foreign-invested wholesale commercial enterprises are prohibited from engaging in salt and tobacco wholesaling, while foreign-invested retail commercial enterprises are prohibited from engaging in tobacco retailing (see "Administrative Measures for Commercial Enterprises with Foreign Investment" announced by the Ministry of Commerce in April 2004). As such, your distribution company in the Mainland cannot engage in drug wholesaling or retailing until the end of this year.	2004/06/11
	Question: I know that we can apply for a CEPA Certificate of Origin (CO) from the Chamber. Does the Chamber also issue the Certificate of Hong Kong Service Supplier (CHKSS) under CEPA? Answer: CEPA CO certifies that products being imported into the Mainland are of Hong Kong origin, while CEPA CHKSS targets Hong Kong service companies aiming to establish business operations in the Mainland. They can apply to the HKSAR Government's Trade and Industry Department for a CHKSS. The Chamber cannot submit applications to the department on behalf of companies. Should you have any inquiries about the relevant legal and accounting services procedures in the application, contact the Chamber and we will introduce you to members who can help you with these kinds of services.	2004/05/11
	Question: How many companies have submitted applications for CHKSS? Where can I get a list of the applicants? Answer: As of April 15, a total of 268 Hong Kong companies submitted applications for a CHKSS, of which 203 had been approved. The Trade and Industry Department keeps a list of applicants, but it is kept confidential to protect businesses' interests. Some companies, however, like to talk to newspapers and magazines about their move into China, so you can get quite a lot of names from the local media.	2004/05/11
	Question: We have set up a joint venture in the Mainland. Now that CEPA allows us to run business in China on a wholly-owned basis, can we convert our joint venture into a wholly-owned business? Answer: Theoretically, this makes sense and will most likely be approved by the relevant authorities. But you must also remember that ownership changes should be conducted in accordance with the Company Law and with the agreement of all the shareholders. You will need to talk with your lawyer to work out the finer details of any changes. After ownership changes have been made, you should send relevant documents together with a CHKSS to the authorities for approval.	2004/05/11
	Question: When will the Central Government announce the final details of the State Judicial Examination 2004, including the date of the examination and the period for accepting admissions? Answer: Hong Kong permanent residents holding Chinese citizenship need to sit the examination in accordance with the State Judicial Examination Implementation Measures (Interim) and the standard requirements for judicial examinations in the Mainland. These cover all aspects of the examination, including admission requirements and procedures, the scope and date of the examination as well as relevant rules and regulations, passing criteria and the accreditation of qualification. Details can be found on the Chamber's web site: http://www.chamber.org.hk/info/china/show_laws.asp?id=786 The Ministry of Justice will announce detailed arrangements of the examination three months in advance. The Chamber will put them on its Web site when the announcement has been made.	2004/04/12
	Question: We are planning to manufacture some new products in Hong Kong. If we want to apply for zero import tariff treatment under CEPA, is the absolute deadline March 31, 2004? As this deadline has gone, is there anything that we can do? Answer: Starting January 1 this year, goods falling under one of 374 Mainland tariff codes for 2004 originating in Hong Kong enjoy zero import duty under CEPA. The government has extended the application deadline to April 30 for new products to be added to the list. If you submit your application before the deadline for your new products -- which you say have yet to go into production -- you can expect your goods to be included in the preferential tariff list from 2006 at the earliest. If your application is submitted between April 30 this year and April 30 next year, your goods won't qualify for zero tariff treatment until 2007. If your products were currently being produced, tariff elimination could start by 2005 if you submit your application before the deadline at the end of this month.	2004/04/12
	Question: Individual insurance intermediaries are allowed to sit the basic qualification examination in the Mainland under CEPA. What does this examination entail? Answer: Admission requirements for Hong Kong insurance practitioners have yet to be announced. The examination is arranged annually by the China Insurance Regulatory Commission, which has issued the "CIRC Notice on Related Matters of the Basic Qualification Examination for Insurance Intermediaries 2004 (CIRC Notice No. 60). For details, visit: http://www.circ.gov.cn/notes/list_detail.asp?AUTO_ID=215 .	2004/04/12
	Q: If a Hong Kong businessman wants to operate an import business on the Mainland and he imports Hong Kong manufactured goods tariff free to sell them on the Mainland, he will receive payment in renminbi, but he has to pay for his goods in Hong Kong dollars. So how can he get foreign exchange to keep importing? A: If you are a Hong Kong businessman and have invested in China, you must have your own foreign exchange account, so you can use this account to import goods. If it is a Mainland enterprise and a Hong Kong businessman, they can also set up a foreign exchange account. If you want to purchase foreign exchange, the application procedures are not difficult. About 10 years ago you could not do this, but now China has large foreign exchange reserves, so on trade, it does have a liberal arrangement.	2004/03/11
	Question: Where did the idea for a free trade agreement between Hong Kong and the Mainland come from? Answer: The Chamber wrote to the HKSAR Chief Executive Tung Chee-hwa in March 2000 proposing a RTA, who then proposed the idea to the Central Government.	2004/03/11
	Q: Can flexibility be built into the rule of origin (ROO) formula so that content requirement (25 percent) can also be used as an alternative, for products where ROO is presently determined by “principal processes?” If that can be done, will design or R&D cost be calculated as the value added? A: The HKSAR Government has committed to agree with the Mainland side on the ROO for the 273 products by September 30. This is a tough deadline to meet. In line with the Chamber’s recommendation, the Hong Kong Government will endeavour to maintain the status quo for ROO. Thus, alternative ROO will not be actively pursued for the time being. In practice, this means that for most products the “substantive transformation (principal processes)” rule will continue to apply, not the value content (percent of value added), although that cannot be ruled out in future. For products currently using value content to determine ROO, status quo means applying the current percentage. In addition, there may be a small number of other products for which percentage content may be used for ROO. For these cases, the government is aware that the private sector would like to have design and R&D included in the calculation.	2004/03/11
	Q: How will a Hong Kong company be defined? A: When CEPA comes into effect, there will need to be a process to certify "Hong Kong companies," like the certification of origin for goods. There are a number of relevant considerations: - Based on the concept of CO, a company seeking to claim CEPA benefits will need to go through a certification process; - In designing the certification process, the principle must be that it is as simple as possible. One model is to have a simple declaration plus submission of basic supporting documents; - Supporting documents may include tax return, office rental contract, MPF record, business registration paper, etc. It is reasonable for these to undergo a basic checking process; - For certain cases, an independent third party report by professional agencies may be required to support the application; - Unlike CO, which is consignment-specific, the CEPA certificate of "Hong Kong company" will be more like a certificate to operate in the Mainland. The role of the Hong Kong Government and the Mainland authorities in the certification will need to be further discussed. It is felt that for the purpose of certifying a Hong Kong company, the Ministry of Commerce's role could be to act as endorser; - The qualified applicant will thus get a certificate to go to the Mainland to claim CEPA benefits.	2004/03/11
	Q: So if a company is a "registered overseas company," say in the Cayman Islands, then it is not considered a Hong Kong company, no matter how substantive its business is in Hong Kong? A: That is right. The company must be incorporated in Hong Kong.	2004/03/11
	Please be advised that the Chamber is only providing its interpretation, analysis, and comments for reference purposes. The above by no means constitute either a legal or a final, official interpretation of the terms and provisions of the CEPA agreement.