For employers, understanding salary obligations for employees in quarantine or lockdown can be challenging. Employers must adhere to labour obligations according to the law otherwise may face labour disputes. We provide a Q&A on employer obligations when employees are quarantined or lockdown.

What is the salary obligation for quarantined employees?

Quarantined employees providing  normal work in quarantine or under other emergency measures taken by the government based on  epidemic prevention and control shall be treated as normal attendance and paid normal remuneration.

According to the notice on properly handling the labor relations during the prevention and control of pneumonia infected by novel coronavirus (the “Notice”) issued by the general office of the Ministry of human resources and social security, infected or suspected employees  suspected employees deemed as close contact and cannot provide normal work during quarantine or medical observation, or due to the implementation of isolation measures or other emergency measures by the government, shall be treated as  normal attendance and paid normal renumeration.

For employers, the Notice suggests that employers negotiate with the employee to treated the period as annual leave or rest days. If negotiations are not established, the employer can implement the overall arrangements according to the annual leave of the isolated employees according to law.

What if my enterprise faces difficulties in production and operation due to the impact of the epidemic measures?

Under the Notice, the enterprise may adjust the salary, rotate the post and rest, shorten the working hours and so forth through consultation with the employees.

If the enterprise is shutdown within a wage payment cycle, the enterprise shall still pay the wages of employees according to the standards stipulated in the labor contract.

If the employee is still unable to provide normal work beyond one wage payment cycle, the enterprise shall pay living expenses, and the standard of living expenses shall be implemented in accordance with the measures of the provinces, autonomous regions and municipalities directly under the central government.

What if employee’s labour contract expires during quarantine?

In the event that the employee’s labor contract expires during quarantine, the date shall be postponed till the  employee finishes the quarantine or medical observation period.

How to determine the arbitration statutory limitation during epidemic measures?

Under, the Labor Dispute Mediation and Arbitration Law of the people’s Republic of China the statutory limitation for application of labour disputes arbitration is limited to one year (‘the period’). The period shall be calculated from the date the parties recognise or should recognise the infringement of rights. However, if the parties are unable to apply for arbitration within the  period due to force majeure or other justified reasons such as epidemic measures, the period shall be suspended and the period shall be recalculated from the date the force majeure or other justified reasons finishes.

Equally, If the labor and personnel dispute arbitration institution cannot hear the case within the period due to the impact of the epidemic measures, the hearing time limit may be postponed accordingly.

This content appears as a courtesy of Horizons Corporate Advisory, a proud member of the China Collaborative Group (CCG Association). It is informational in nature and does not constitute legal advice or establish an attorney-client relationship between you and its author, publisher or any member of CCG. For more information, please visit www.horizons-advisory.com. 

The post Employer Obligations during Quarantine appeared first on China Collaborative Group.

1. What is the salary obligation for quarantined employees?

Quarantined employees providing normal work in quarantine or under other emergency measures taken by the government based on epidemic prevention and control shall be treated as normal attendance and paid normal renumeration.

According to the notice on properly handling the labor relations during the prevention and control of pneumonia infected by novel coronavirus (the “Notice”) issued by the general office of the Ministry of human resources and social security, infected or suspected employees suspected employees deemed as close contact and cannot provide normal work during quarantine or medical observation, or due to the implementation of isolation measures or other emergency measures by the government, shall be treated as normal attendance and paid normal renumeration.

For employers, the Notice suggests that employers negotiate with the employee to treated the period as annual leave or rest days. If negotiations are not established, the employer can implement the overall arrangements according to the annual leave of the isolated employees according to law.

2. What if my enterprise faces difficulties in production and operation due to the impact of the epidemic measures?

Under the Notice, the enterprise may adjust the salary, rotate the post and rest, shorten the working hours and so forth through consultation with the employees.

If the enterprise is shutdown within a wage payment cycle, the enterprise shall still pay the wages of employees according to the standards stipulated in the labor contract.

If the employee is still unable to provide normal work beyond one wage payment cycle, the enterprise shall pay living expenses, and the standard of living expenses shall be implemented in accordance with the measures of the provinces, autonomous regions and municipalities directly under the central government.

3. What if employee’s labour contract expires during quarantine?

In the event that the employee’s labor contract expires during quarantine, the date shall be postponed till the employee finishes the quarantine or medical observation period.

4. How to determine the arbitration statutory limitation during epidemic measures?

Under, the Labor Dispute Mediation and Arbitration Law of the people’s Republic of China the statutory limitation for application of labour disputes arbitration is limited to one year (‘the period’). The period shall be calculated from the date the parties recognise or should recognise the infringement of rights. However, if the parties are unable to apply for arbitration within the period due to force majeure or other justified reasons such as epidemic measures, the period shall be suspended and the period shall be recalculated from the date the force majeure or other justified reasons finishes.Equally, If the labor and personnel dispute arbitration institution cannot hear the case within the period due to the impact of the epidemic measures, the hearing time limit may be postponed accordingly.

This content appears as a courtesy of Horizons Corporate Advisory, a proud member of the China Collaborative Group (CCG Association). It is informational in nature and does not constitute legal advice or establish an attorney-client relationship between you and its author, publisher or any member of CCG. For more information, please visit www.horizons-advisory.com. 

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What is force majeure?

A force majeure clause exempts one or both parties from liability or obligation since an extraordinary event, such as war, strike, crime, or “Act of God” prevents one or more parties from fulfilling their obligations under the signed contract. Epidemic measures enacted to contain COVID-19 (such as lockdown) which directly restricts companies from performing contractual obligations may constitute as a force majeure, since the original terms can no-longer be performed. For instance, as the citywide lockdown in Shanghai continues, manufacturers unable to resume work cannot fulfil their contractual obligations, and such manufacturers may invoke the force majeure clause.

Invoking force majeure during or after lockdown

The legal basis for force majeure is provisioned under The Civil Code of the People’s Republic of China

Articles 180, 563 and 590.

Article 180
A person who is unable to perform his civil-law obligations due to force majeure bears no civil liability, unless otherwise provided by law. “Force majeure” means objective conditions which are unforeseeable, unavoidable, and insurmountable

Article 563
The parties may rescind the contract under any of the following circumstances:
(1) the purpose of a contract is not able to be achieved due to force majeure;

Article 590
Where a party is unable to perform the contract due to force majeure, he shall be exempted from liability in whole or in part according to the impact of the force majeure, unless otherwise provided by law. The party unable to perform the contract due to force majeure shall promptly notify the other party to mitigate the losses that may be caused to the other party, and shall provide proof of the force majeure within a reasonable period of time. Where the force majeure occurs after a party’s delay in performance, such party’s default liability shall not be exempted

Under such provisions, companies invoking force majeure are not wholly exempted from contractual obligations. Rather companies are required to prove that the lockdown measures directly impacted their contractual terms. For example, a manufacturer could not deliver the goods as agreed within the contract since the factory was lockdown and manufacturing could not continue, therefore, the manufacturer could be exempted from such obligation and breach of contractual term.

In conclusion, affected companies can be exempted from for the breach of contract in part or in whole according to the influence of the force majeure – such as an epidemic measure.

Terminating contracts under force majeure

Contracts can only be terminated if the fundamental purpose of the contract cannot be achieved due to force majeure. Namely, where the contract cannot be performed or cannot be performed in accordance with the agreed terms defined in the contract.

The Circular of the Supreme People’s Court on Issuing the Guiding Opinions (II) on Several Issues concerning the Proper Trial of Civil Cases Related to the COVID-19 Epidemic According to the Law (“the guiding opinions of the Supreme Court (II)) provides further guidance on contract termination.

If the epidemic situation or epidemic prevention and control measures cause the parties to fail to perform the sales contract within the agreed time limit or the performance cost will be increased, and the continued performance does not affect the realization of the purpose of the contract, if either party request to terminate the contract, the people’s court will not support.

Under such example, though the continued performance of the contract has been adversely affected by the epidemic measures, the force majeure does affect the purpose of the contract. Hence, the contract cannot be terminated.  Instead, both parties to the contract shall still perform their contractual obligations in accordance with the agreement in accordance with the principle of good faith.

The affected party in such instance may apply the change of circumstance to renegotiate the contractual terms, if the epidemic situation or epidemic prevention and control measures significantly increased the performance costs of labor, raw materials and logistics, or significantly reduced the price of products.

Change of circumstances

The Civil Code of the People’s Republic of China revised in 2020 includes epidemic within the provisions in change of circumstances. Specifically, parties to a contract adversely affected by the epidemic may renegotiate the conditions for the performance of the contract. If the negotiation fails within a reasonable period of time, each party may request the people’s court or arbitration institution to change or terminate the contract.

The Civil Code stipulates parties to renegotiate new terms in the first instance and continue to perform according to the negotiated terms. However, if the negotiation fails each party may request the people’s court or arbitration institution to change or terminate the contract by applying to the principle of fairness.

Where the people’s court or arbitration institution decides to change the contract, the party shall continue to perform the contract according to the changed conditions based on the agreement of the parties or the effective judgment document.

Case Study

Epidemic prevention and control measures directly restricted the delivery of  goods within the agreed time limit defined in the contract. Parties failed to negotiate new terms and the seller requested the people’s court to change the conditions of performance time limit. The people’s court changed the performance time limit according to the principle of fairness in combination with the actual situation of the case.

Consequently, companies should note that invoking force majeure clause for lockdown measures can be complex, which requires proof of the force majeure directly impacting the contractual obligation. Under certain circumstances, the party is exempted from the breach of contract, but the performance of the contract shall continue. Terminating contracts under force majeure should demonstrate the purpose of the contract is affected by the force majeure, otherwise the people’s court may not support such case. Alternatively, companies may utilise the change of circumstances provisions to renegotiate more suitable terms or apply to the people’s court to change or terminate the contract.

This content appears as a courtesy of Horizons Corporate Advisory, a proud member of the China Collaborative Group (CCG Association). It is informational in nature and does not constitute legal advice or establish an attorney-client relationship between you and its author, publisher or any member of CCG. For more information, please visit www.horizons-advisory.com. 

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Lowered percentages

Effective from the 27 March till the 31 December 2022, the percentage related to two types of social security have been lowered.

The post Recent social security insurance policies in Shanghai appeared first on China Collaborative Group.

Q: I am unable to submit my document for my residence permit renewal due to my compound lockdown, can I submit online?

A: Applications for residence permit require documents to be submitted to the relevant exit and entrance bureau. In the case, the applicant was unable to submit due to lockdown, a certification of the compound should be obtained. However, applicants do not automatically receive an extension period during lockdown.

Q: If I am unable to renew my residence permits before the expiry date, will I face penalties?

A: Residence permits can be renewed three-months in advance; therefore, the lockdown period does not automatically exclude any fines or administrative penalties for overstays. Each circumstance would be evaluated individually by the relevant authorities. Even though, offenders may not be fined, a written record may be noted which could impact future applications.

Q: My residence period expires at the end of May, when should I renew it?

A: We recommend leaving ample time to renew residence permits. Thus, renewal should be conducted at the earliest three-months in advance to migrate risks arising from extraordinary circumstances.

The post Renewing your residence permit or visas during Shanghai lockdown appeared first on China Collaborative Group.

We highlight the practical elements for enterprises to note when implementing the resumption of work.

1. Closed-loop management

Enterprise should implement a closed-loop pandemic control mechanism that is acknowledged by the authorities. Namely, a closed-loop refers to area zoning and category-based management for different areas to prevent physical contact between different groups of employees such as in production, common areas, or meeting rooms, as well as establishing no-contact with external individuals such as logistic suppliers (external individuals must hold a negative nucleic acid test certificate within 48 hours and on-site negative antigen test results). As result, employers should ensure the employees are segregated into groups, establish the work environment to permit one metre social distancing within the workplace, and restrict or limit physical contact between such groups to isolate positive cases to one group and prevent cluster outbreaks.

2. Emergency response plan

Enterprises shall formulate emergency response plans for COVID-19 outbreaks in the workplace. Any employees with abnormal antigen detection and nucleic acid detection should be reported to the official in charge and the Centre for Disease Control and Prevention. Transportation and treatment of those diagnosed with COVID-19 should be priorly established with the local government and temporary isolation measures should be implemented for close-contact staff. Large enterprise shall set up a shelter in the factory area.

3. Stock of Anti-Pandemic Materials

Enterprises should maintain a stock of anti-pandemic materials and purchase antigen self-test kits, face masks, alcohol-based disinfectants, hand sanitizers, infrared thermo-detectors, thermal imaging detectors, protective suits, goggles, disposable gloves, etc. whenever necessary. A minimum supply of anti-pandemic materials for 14 days is recommended. All used protective items shall be disposed properly and safely.

The Guideline also adds that enterprises should resume work and production under the guidance of district governments on a “one-on-one” basis. We suggest that enterprises consult with professionals to ensure the resumption of work is compliant with the local guidelines and district government.

This content appears as a courtesy of Horizons Corporate Advisory, a proud member of the China Collaborative Group (CCG Association). It is informational in nature and does not constitute legal advice or establish an attorney-client relationship between you and its author, publisher or any member of CCG. For more information, please visit www.horizons-advisory.com. 

The post Resuming work for industrial enterprises in Shanghai? appeared first on China Collaborative Group.

Corporate income tax

The corporate income tax rate was reduced from 10 percent to 5 percent for small and micro-businesses. The tax rate is applied to the profit portion from 1 million RMB to 3 million RMB.

Reduction and exemption of six taxes and two fees

Six taxes and two fees for small and micro enterprises and individual businesses will be reduced within 50% of the tax amount (taxes include resource tax, urban maintenance, and construction tax, real estate tax, urban land use tax, stamp duty excluding stamp duty on securities transactions, arable land occupation tax and education fee surcharge, and local education surcharge within 50% of the tax amount)

The percentage rate will be implemented by the local provincial or municipal government; therefore the rate may vary.

Eligibility

Small and micro enterprises are defined as the following:

• Engaged in industries not restricted or prohibited by the State
• Annual taxable income does not exceed 3 million RMB
• The number of employees does not exceed 300
• Total assets do not exceed 50 million RMB

Refund of incremental VAT credits

From the tax filing period of April 2022, refund of incremental VAT credits is extended to micro and small enterprises, and individual-owned businesses. Such enterprises are also granted a lump sum refund of existing tax credits.

Eligibility

Such enterprises shall meet the following conditions to apply for a refund.

Tax credit rating is A or B;

Has not obtained any VAT credit refund or export tax refund in a fraudulent manner or falsely issued any VAT invoice in the 36 months before the application for the tax refund;

Has not been subjected to penalties on two or more occasions by a tax authority for tax evasion in the 36 months before the application for tax refund; and

Has not benefited under the policy of “immediate refund upon payment” or “return/refund after payment” of excess VAT since April 1, 2019.

Small-scale VAT taxpayers

Small-scale VAT taxpayers subject to 3% VAT on sales revenue will be exempted from VAT from 1 April to 31 December 2022.

Eligibility

Small-scale VAT taxpayers are taxpayers engaged in producing goods or providing services with an annual VAT taxable revenue not exceeding 5 million RMB.

The post Latest tax policies to support businesses during the COVID-19 outbreak appeared first on China Collaborative Group.

Q: Which type of enterprises are eligible for rent exemptions?

A: Under the Circular on Working Effectively on the Rent Concessions for Small and Micro Enterprises and Individual Businesses in the Service Industry in 2022, small and micro enterprises and individual business in services are eligible for rent exemptions. In Shanghai, the municipal government issued further policies to expand the scope of enterprises and individual businesses to all industries. For those outside of Shanghai, we recommend checking the related local municipal or provincial policies.

Q: Does rent exemptions apply to all properties?

A: Applicable enterprises renting state-owned housing are eligible for rent exemptions. Such enterprises may be exempted from 3 months’ rent. An additional 3 months is allocated to enterprises listed in the medium or high-risk areas or under circumstances that the epidemic prevention measures severely impacted business operations.

Q: Does rent exemptions apply to enterprises who have recently moved into their property?

A: Enterprises are required to have rented their property for minimum 6 months in the last year. Those eligible for an additional 3 months, enterprises are required to remain in the same property for 2 months afterwards.

For those renting commercial properties, rent exemptions or deductions is at the discretion of the commercial property. Negotiating favorable terms could be utilised to manage cash-flow challenges.

This content appears as a courtesy of Horizons Corporate Advisory, a proud member of the China Collaborative Group (CCG Association). It is informational in nature and does not constitute legal advice or establish an attorney-client relationship between you and its author, publisher or any member of CCG. For more information, please visit www.horizons-advisory.com. 

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