Legal News in China

Amendment to the Civil Procedure Law of the Republic of China.

On January 1, 2024, the 5th Amendment to the Civil Procedure Law of the People's Republic of China came into force. The amendment contains significant changes to the provisions on foreign-related civil proceedings. Among other things, this affects foreign companies involved in civil proceedings in China. The amendment extends the jurisdiction of the Chinese courts and gives them more freedom of decision in foreign-related cases. The amended law also grants contracting parties more flexibility in the choice of court location. Particularly important for foreign companies are the new options for serving court documents, such as statements of claim. These can now be served on subsidiaries, representative offices and legal representatives of foreign companies in China.

New Company Law of the People's Republic of China

The long-awaited amendment to the Company Law of the People's Republic of China was published on December 29, 2023 and will come into effect on July 1, 2024.The amendment is the first major revision of the law since 2005 and will have a significant impact on all companies in China, including subsidiaries of foreign companies.The law provides for a number of mandatory changes that require immediate action.

CAC provisions to regulate and promote cross-border data flows

The Cyberspace Administration of China's ("CAC") Provisions on the Regulation and Promotion of Cross-Border Data Circulation may yet come - but probably in a revised form! The CAC published the Provisions on the Regulation and Promotion of Cross-Border Data Circulation (Draft for Comment) ("Draft"), which contains a significant relaxation of the current strict regime under the Law on the Protection of Personal Data ("GSPD").Given the wording of the Draft that contradicts the GSPD and the fact that there were no further notifications after the deadline for comments on October 15, 2023, we assumed that the CAC would not pursue the Draft. On Monday, February 5, 2024, the Ministry of Commerce surprisingly announced that the CAC is working on finalizing the draft. This is good news for all companies in China that process personal data and transfer it abroad, e.g. to their parent companies and business partners in the EU.In view of the contradictions between the draft and the higher-ranking CSPD, it remains to be seen to what extent the revised draft will facilitate cross-border data flows.

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Your point of contact in China: Rainer Burkardt

Burkardt & Partner

Suite 2507, 25/F, Bund Center
222 Yanan Road (East)
Shanghai 200002, P.R. China

CELL     +86 186 1687 7153
TEL       +86 21 6321 0088
FAX      +86 21 6321 1100

www.bktlegal.com
info@bktlegal.com

The introduction of the Serious Accident Penalty Act for small companies (5 - 50 employees) had been and will be further publicly debated.

The Korean parliament (National Assembly) debated last week whether the Serious Accident Penalty Act ("SAPA") should be extended as scheduled to (almost) all companies in Korea from January 27, 2024, and not only apply to companies with 50 or more employees, or whether the introduction of the SAPA should be postponed for some time. The proposal failed to reach the National Assembly plenary session as the ruling and opposition parties struggled to reach an agreement but failed. However, it seems that the discussion on the SAPA will continue in the National Assembly. Why is this worth reporting?

The SAPA was promulgated on January 26, 2021, and came into effect on January 27, 2022, for companies (or workplaces) with 50 or more employees. Since January 27, 2024, SAPA shall also apply to businesses (or workplaces) with five or more but fewer than 50 employees. Therewith in addition more than 837,000 businesses and nearly 8 million workers will be covered by the SAPA. Prior to SAPA, workplace safety was governed by the Occupational Safety and Health Act (OSHA), which was criticized as ineffective in preventing workplace injuries and occupational illnesses. The SAPA was enacted to ensure the safety and health of workers in the workplace by penalizing business owners or the responsible manager (e.g., the representative director or CEO) of the business in question for violations of safety and health-related laws that result in a serious accident. A serious accident is either a serious industrial accident or a serious public accident (caused by defects in the design, manufacture, installation and maintenance of certain materials, products, public facilities, or public transportation).

In addition, SAPA extends the scope of protection of workers to subcontractors and includes persons who are not in an employment relationship (e.g., persons who provide their labor through contracting or outsourcing) and increases the criminal penalties (e.g., imprisonment of at least one year for the responsible senior manager in cases involving death).

The sanctions for the company owner or the responsible management personnel of a company (e.g., the representative director or a person responsible for safety and health matters whose authority and responsibility in relation to safety and health matters is comparable to that of the representative director, in particular the final decision-making authority in all matters relating to safety and health, including personnel and budget) are set out as follows:

The obligations to ensure health and safety under the SAPA include the following nine measures to establish and implement a health and safety management system (Article 4 of the SAPA Presidential Decree):

• Establishment of health and safety objectives and management strategies

• Establishing a specific organization to monitor and manage health and safety

• Establish procedures to identify and improve hazard or risk factors, inspections and required actions

•Provide health and safety personnel, facilities and equipment necessary for the prevention of accidents, and budget and implement measures to improve hazard or risk factors

• Supporting the work of the health and safety representative (issuing authorizations and budgets, defining, evaluating and managing evaluation criteria)

• Use of specialized personnel, such as safety and health managers, in accordance with OSHA

• Establish communication channels for workers and develop and implement improvement plans

• Preparing action manuals on responses to serious occupational accidents and conducting a follow-up inspection

• Inspecting the establishment and implementation of the criteria and procedures for assessing the skills and capabilities related to major occupational injury prevention measures when contracting out or outsourcing/subcontracting.

The sanctions for the company owner or the responsible management personnel of a company (e.g., the representative director or a person responsible for safety and health matters whose authority and responsibility in relation to safety and health matters is comparable to that of the representative director, in particular the final decision-making authority in all matters relating to safety and health, including personnel and budget) are set out as follows:

Serious occupational accidents

- Fatalities (one or more persons): Imprisonment of one year or more and/or a fine of up to KRW 1 billion (both can be imposed at the same time)

- Injuries (two or more persons receiving medical treatment for six months or more due to the same accident): Imprisonment of up to seven years or a fine of up to KRW 100 million

- Occupational disease (three or more people within one year due to the same hazard): Imprisonment of up to seven years or a fine of up to KRW 100 million

Note: The penalty is increased by 50% for repeated violations within five years.

Serious public accidents

Fatalities (one or more persons): Imprisonment of one year or more and/or a fine of up to KRW 1 billion (both can be imposed at the same time)

- Injuries (ten or more people receiving medical treatment for two months or more due to the same accident): Imprisonment of up to seven years or a fine of up to KRW 100 millionp>

- Illness (ten or more people receiving medical treatment for three months or more for the same cause): Imprisonment of up to seven years or a fine of up to KRW 100 million

Looking at the law itself, it does not appear to have been intended as a guide to action for top decision-makers, but rather as a political wish list (which is not to say that there were not ample and recognized reasons for the need for better protection of workers or the public) that became law with good intentions, but somewhat faster than required for a well thought-out law.

Looking at the penalties for the top decision makers in a company, one can understand that especially small business owners and the top decision makers of smaller companies are afraid whether they can cope with the requirements of SAPA with their always limited resources, which seems to be the very least basis for a reasonable and effective defense in case of an accident in a company involving an employee or a member of the public.

In sum, the SAPA is an attempt to increase the safety of life and limb of employees and the public by making this a top priority and holding top decision-makers accountable. The required plans, strategies, processes, people, and budget will be created or developed and made available for the good purpose. Training for all employees and cooperation with the trade unions should help the law to achieve its full potential. However, it is now also up to the employees to accept the offer of the legislator and the management and to implement the safety requirements in the sense of the legislator and to fill them with life.

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Your point of contact in Korea: Joachim Nowak

DAERYOOK & AJU LLC

7 - 16F, Donghoon Tower
317, Teheran-ro, Gangnam-gu
Seoul 06151, Republik Korea

CELL +82 10 9001 6430
TEL   +82 2 3016 9594
FAX  +82 2 3016 5222

www.draju.com
nowak@draju.com

Increase of Service Tax from 6% to 8% moving closer

In approximately two weeks, on 1 March 2024, the Service Tax rate will increase from currently 6% to 8%. This will put an end to the SST-discussions in Malaysia, but only temporarily:

Introduced in 2018, SST replaced the then much-loathed GST, which was only three years old. The GST tax rate had previously been zeroed, so that it was in effect inexistent. Since then, discussions have been ongoing. With Malaysia’s budget deficit growing every year, the government is seeking additional sources of income.

Despite the increase from 6% to 8%, many exceptions will continue to exist in practice. This among others includes the very high threshold of approximately EUR 100,000 (MYR 500,000), below which companies do not need to charge SST. The increase by two percentage points will thus not have any significant impact on the government’s budget and we anticipate further changes in the future.

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Your point of contact in Malaysia: Dr. Harald Sippel

Skrine

Level 8, Wisma UOA Damansara
50 Jalan Dungun, Damansara Heights
Kuala Lumpur, Malaysia

TEL        +60 1 8211 4958
FAX       +60 3 2081 3999

www.skrine.com
harald@skrine.com

One Person Corporation (OPC) introduced in the Philippines

In the Philippines, the Revised Corporate Code introduced the One Person Corporation (OPC) form of company. A One Person Corporation is a business structure that allows a single person to incorporate a company as a separate legal entity. On the other hand, a sole proprietorship is a business owned and operated by one person, without any legal distinction between the owner and the business.

The One Person Corporation should indicate the letters “OPC” at the end of its corporate name. The single stockholder is considered the sole director and president. The single stockholder can perform the duties of the President, Director, Treasurer and Corporate Secretary simultaneously. A foreign natural person may put up an OPC, subject to the applicable requirement and constitutional and statutory restrictions on foreign participation in certain investment areas or activities.

A One Person Corporation (OPC) offers several advantages over a sole proprietorship, particularly in the areas of liability, succession, and taxation, such as:

- Separate Legal Entity: A One Person Corporation is a separate legal entity from its owner, similar to a regular corporation. This separation provides distinct legal and financial identity, which can offer advantages in terms of contracts and taxation.

- Limited Liability: One of the significant advantages of an OPC over a sole proprietorship is limited liability. In a sole proprietorship, the business owner is personally liable for all debts and obligations of the business. However, in an OPC, the liability of the owner is limited to the extent of their capital contribution to the corporation, protecting personal assets from business liabilities.

- Perpetual Existence: Unlike a sole proprietorship, which may cease to exist upon the death or incapacity of the owner, an OPC has perpetual existence. When the sole shareholder of an OPC dies, their legal heirs can continue managing the OPC.

-Professional Image: Operating as an OPC can enhance the professional image of the business because it has a structured decision-making process. It may convey a sense of stability, credibility, and longevity to clients, partners, and suppliers, compared to a sole proprietorship.

- Access to Financing: OPCs may find it easier to access financing or attract investment compared to sole proprietorships. Banks and investors often prefer dealing with corporate entities due to their formalized structure, governance, and limited liability features.

-Tax benefits: Both OPCs and sole proprietorships can avail of the 40% Optional Standard Deduction (OSD) for personal and corporate income tax reasons. The optional standard deduction is in lieu of the itemized operating expenses. Corporations are allowed to deduct the cost of sales from the sales to arrive at the gross income, and from the gross income the OSD is computed and deducted to arrive at the net taxable income. For the individuals, on the other hand, the OSD is computed and deducted from the gross sales/receipts to arrive at the net taxable income. A OPC finally has the additional benefit of a flat 25% income tax rate (20% for up to net taxable income not exceeding PhP5 Million), compared to the graduated income tax rates applied to sole proprietorships. This can be advantageous for businesses with higher incomes.

However, an OPC also has some disadvantages compared to a sole proprietorship, such as:

- An OPC has higher registration and compliance costs, which may not be affordable for small-scale businesses.

- An OPC has more legal and regulatory requirements, such as appointing a nominee and an alternate nominee, submitting annual reports and financial statements, and maintaining a minimum number of directors and officers.

- An OPC cannot benefit from the 8% income tax rate for businesses with income below P3 million. This benefit is only available to sole proprietorships.

Overall, structuring through One Person Corporation instead of a sole proprietorship can offer enhanced legal protection, credibility, and growth opportunities for small businesses and entrepreneurs in the Philippines. However, it's crucial to consider the specific legal, financial, and operational implications before making the election, as well as to comply with all regulatory requirements for establishing and maintaining an OPC. Therefore, choosing between an OPC and a sole proprietorship depends on the entrepreneur’s goals, the nature and size of the business, and the potential risks and benefits involved.

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Your point of contact in the Philippines: Lutz Kaiser

Villanueva Gabionza & Dy Law Offices

20th/F Corporate Center
139 Valero St., Salcedo Village
Makati City 1227, Philippines

CELL      +63 995 985 4957
TEL        +63 2 8813 3351
FAX       +63 2 8816 6741

www.vgdlaw.ph
manila@adwa-law.com

Significant investments in Singaporean companies

The Significant Investment Review Bill was passed in the Singapore Parliament on January 9, 2024 (https://www.parliament.gov.sg/docs/default-source/default-document-library/significant-investments-review-bill-38-2023.pdf) and is expected to come into effect in the first half of the year. The bill provides for a new investment management regime to regulate significant investments, whether domestic or foreign, in sgp. companies that are important to Singapore's national security interests. With this new law, Singapore joins a growing number of countries that have tightened investment control regulations for national security reasons since the 1990s.

Companies deemed critical to Singapore's national security interests must notify or obtain approval from the authorities for changes in ownership or control, among other things. However, the Bill does not define in detail what is meant by "national security interests".

Under the Bill, the Singapore Government is also empowered to raise "objections" within a period of two years after a transaction and can take targeted action against companies that have breached Singapore's national security interests.

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Your point of contact in Singapore: Dr. Andreas Respondek

Respondek & Fan Pte Ltd

1 North Bridge Road
#16-03 High Street Centre
Singapore 179094

CELL      +65 9751 0757
TEL        +65 6324 0060
FAX        +65 6324 0223

www.rflegal.com
respondek@rflegal.com