Shanghai Businesses Re-open: Support Measures Available
With the lockdowns coming to an end, it is important to understand the support and relief offered to businesses during this time. In an effort to contain the COVID outbreak that had swept Shanghai and other parts of China in early March, millions of residents have been ordered to remain at home for an extended period of time. The stringent lockdown measures, in accordance with China’s zero-covid policy, has taken a significant toll on the nation’s economy, labor market, foreign investment and the global supply chain.
We sat down with Brian Blömer, Director at Moore MS Advisory, who provided an overview of the situation and the support measures provided.
What are the key support measures that have been introduced specifically to help businesses during the lockdown?
Firstly, it is important to make a distinction between the measures that have been announced specifically to support businesses to alleviate some of the pain they face due to the government control measures, such as the lockdowns, and the recovery measures that were announced earlier in the year with the aim to boost China’s economy.
Industries that are the most heavily impacted in terms of their bottom line and production capabilities will be prioritized and financial institutions will be encouraged to offer support in the form of loans. However, based on our experience it has previously and may still be difficult for foreign investors to obtain such financial support.
On a taxation level, extensions will be granted on a case-by-case basis for social security payments for those companies in Shanghai who are unable to pay them, until the end of June at the latest. In other regions, such as Beijing, specific industries may be granted postponement of social security payments depending on their industry and eligibility. Furthermore, tax filing deadlines for April have been delayed until May 31st, reducing the administrative burden on businesses.
Can you further elaborate on those recovery measures that have been implemented for businesses and individuals to support the economy?
Since the lockdown began specific measures have been fairly limited for the moment, therefore we encourage businesses to take stock of the general recovery measures as they can offer certain immediate relief.
Firstly, tax and fee reduction policies will be extended to support manufacturing companies, small enterprises and self-employed individuals. Specifically, the “six taxes and two fees reduction” (e.g., resource tax, urban land use tax etc.) will be extended until the end of 2024, targeting to support small and low profit enterprises. The scale of tax-and fee reductions is to be maintained in accordance with the law and local market conditions.
Small-scale taxpayers (business with up to 150,000 RMB in monthly sales) will be exempted from VAT as of April 1st, 2022, while still being able to issue normal fapiaos with 0% VAT, and special VAT fapiaos at a 3% rate.
The scope of enterprises eligible for VAT refunds has been expanded as of April 2022, whereas previously only companies in advanced manufacturing were eligible, now small- and micro enterprises and qualified industries can apply VAT refunds monthly, provided they satisfy certain requirements. Additionally, one-time refunds for all accumulated outstanding VAT refund credits will be allowed for those eligible companies.
Corporate income tax rates have also been reduced, to reduce the burden for small and micro profit enterprises. So, for example, enterprises recording profits between RMB 1 million and RMB 3 million will be taxed at an effective 5% rate as opposed to the previous 10%. And lastly, for companies and commercial households renting state-owned properties, 3 to 6 months of rent exemptions will be granted based on relative risk levels.
These measures will hopefully alleviate some of the pressure many smaller businesses would have felt over this period.
Given the new guidelines on an employment level, what considerations for employees have been made and how are wages paid during the lockdown?
This has been quite a point of concern for many employers and employees during the lockdown period. Three specific circumstances of employment during lockdown have been identified and employers are required to follow the following guidelines for wage payments based on the specific circumstance.
- Workers who are able to work normally – standard wages should be paid.
- Workers only able to provide limited services from home – they can be encouraged by their employers to take annual leave or another type of leave, with the appropriate wages paid based on the provisions of that leave. It is not possible for the employer to unilaterally decide employees must take leave though.
- Workers who are unable to provide normal or reduced labor – regular payment should be received in the first payment cycle and reduced payment policies can be appropriately introduced thereafter with mutual agreement. For employees who are unable to perform any work, we have seen many being shifted to reduced pay after April and the requirements of such reduced pay are regulated at a local level.
Regarding employees who have contracted COVID-19, a company is required to pay an employee who is considered a patient, disease carrier, suspected patient, close contact, etc., with the normal pay as detailed in the contract agreement throughout the period of quarantine.
An employee who requires medical treatment and placed under further isolation after completion of the mandatory quarantine is to be paid in accordance with the provisions for sick leave wages.
Can an employer terminate an employee during the lockdown period?
Labor law in China is very protective of employees. According to an official notice an employer cannot terminate an employment relationship if the employee is unable to perform their work “due to government control measures or because they are under lockdown/quarantine”.
However, it is possible to terminate employment relationships on other grounds, such as performance issues or in case it is required for the company’s survival. In those instances, it is important to note that employers must follow the prescribed regulations prior to being able to terminate employment relationships and will most likely need to pay severance.
What happens to foreign personnel who need to renew their visas or residence permits?
Foreign personnel will not be penalized for any delays in their applications, given that all current visa services have been suspended. Foreign personnel are encouraged to prepare the appropriate documentation in advance and submit their applications immediately upon the date of release.
For foreigners wanting to leave the country during the lockdown periods, they would need to obtain an exit pass that allows access outside of the designated community, file a transportation request, provide their flight itinerary and documents that prove urgency. Passports left in the hands of the Public Security Bureau can be retrieved if necessary.
Are the policies and effects different between the major cities?
While zero-covid is a nationwide policy, the implementation of lockdown measures differs in each province and city.
In Shanghai, the lockdown procedures and health protocols have been managed by a tier-system based on relative levels of risk. Infected individuals are required to quarantine in isolated facilities, with other residents required to remain at home and be tested regularly.
For those in low-risk areas where new confirmed cases have not been reported for a period of over 14 days, they are officially allowed to go out of their home and move around in a designated area.
The prolonged lockdown in Shanghai and other cities has brought potential long-term disruption to local economic activity and is having a negative impact on business. Many companies are experiencing challenges with maintaining operations, retaining their workforces and stabilizing their supply chains, among other issues. The central government is making an effort to support businesses and individuals while controlling the spread of the virus.
The Zero-Covid policy has also influenced the employment situation in Beijing, after the city saw a minor increase in the number of infections in April. Similar employment policy measures to those implemented in Shanghai, have now been implemented in Beijing with minor disparities.
For instance, with employees who are unable to provide any sort of labor during a lockdown, employers do not need to pay a 100% of the minimum wage as in Shanghai, but rather they are required to pay at least 70% of the minimum wage after the first pay cycle.
For employees who are suspected of having COVID, the same measures as mentioned above apply to employment relationships in Beijing as well.
Premier Li Keqiang has stated that the priority now is to help businesses affected to weather financial difficulties and retain employees.
How Can Your Business Be Supported?
During what is an undoubtedly challenging period for all employees and businesses, we are here to provide assistance to businesses who are facing difficulty. Some businesses may want to optimize their financial practices, while other or looking to switch to dormant status or even liquidate, no matter the challenge, we are here to simplify the process and take care of the administrative burden for you. Check out my profile or visit our website and get in touch with us today and let us help you.
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