LPA Asia Smart News

Through this newsletter, we offer you a regular selection of legislative and judicial decision insights prepared by LPA lawyers from its 4 Asian offices as well as some recent news from our teams.

SMART ALERT
Is your business impacted by the new Foreign-sourced Income Exemption regime in Hong Kong?

LEGAL INSIGHTS IN ASIA 
> Hong Kong
   – Hong Kong seeks to attract foreign talents 
   – Hong Kong’s copyright law catches up with the digital age 

> China
   – Retirement Policy for Foreigners in China 
   – Significant Increase of trademark rejections in China! 

> Singapore
   – Recent employment law updates 
   – Multijurisdictional Cash-pooling agreement – do handle with care! 

> Japan
   – Relocating and setting up a new business gets easier in Japan 
   – Commercial registration and signature certificate for directors

NEWS FROM LPA

 

---

SMART ALERT

Is your business impacted by the new Foreign-sourced Income Exemption regime in Hong Kong?

On 1 January 2023, the Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Ordinance 2022, came into operation. Under the new legislation, specified foreign-sourced income generated by a multinational enterprise (MNE) carrying on an activity in Hong Kong are to be regarded as arising in or derived from Hong Kong and therefore chargeable to profits tax if and when they are received in Hong Kong unless the MNE entity has a sufficient economic substance in Hong Kong or meets alternative requirements. See more 

 

LEGAL INSIGHTS IN ASIA

Hong Kong seeks to attract foreign talents 

To jumpstart its post-COVID economy, the Hong Kong government is pulling out all stops to attract and retain talents from Mainland China and abroad.  A barrage of initiatives and incentives aims to lure senior staff, highly skilled university graduates and qualified persons in professions for which no local candidates are available in Hong Kong.  

Top Talent Scheme 

The Top-Talent Pass Scheme targets non-Hong Kong individuals holding senior positions or excellent academic qualifications with a preference for those who have work experience.  Applicants need to meet any of the following conditions:  

2. an income of at least HKD 2.5 million in the most recent year; 
3. a bachelor’s degree from a top 100 university and no less than 3 years’ work experience during the recent 5 years; or 
4. a bachelor’s degree from a top 100 university obtained in the past 5 years, subject to a quota of 10,000 places if the applicant has less than 3 years of work experience.

The applicants are not required to have secured an offer of employment in Hong Kong at the time they apply.  They are eligible to stay a maximum of 24 months without conditions other than normal immigration requirements, such as holding a valid travel document, having a clear criminal record, etc.  Successful applicants can bring their dependants to Hong Kong and such dependants are allowed to take up employment or study in Hong Kong. 

Relaxation of overseas hiring requirements  

The General Employment Policy (the “GEP”) makes it easier for local employers to hire overseas professionals for which no candidates are readily available in Hong Kong.  Employers may seek to employ foreign professionals under the GEP if the following conditions are satisfied:  

1. the applicant has a good education background, normally a first degree in the relevant field, but in special circumstances, good technical qualifications, proven professional abilities and/or relevant experience and achievements supported by documentary evidence may also be accepted; 
2. there is a genuine job vacancy; 
3. the applicant has a confirmed offer of employment at a normal remuneration

A similar scheme is available for professionals from Mainland China under the Admission Scheme for Mainland Talents and Professionals (the “ASMTP”).  The Mainland professionals that may be hired under the ASMTP must possess special skills not readily available in Hong Kong.  The employers hiring professionals under the GEP and ASMTP can benefit from a relaxation of the bureaucratic burden when applying for visas such as no longer having to prove that they cannot fill the position with local professionals.  Another measure aimed at attracting new talent is the suspension of the annual quota under the Quality Migrant Admission Scheme for a period of 2 years. 

Extension of visa validity 

Further measures to retain qualified professionals in Hong Kong include (a) the extension to a maximum of 3 years of the validity of the employment visas issued to talents admitted under the previous and the new talent admission schemes; and (b) the extension from 1 to 2 years of the validity of the visas of foreign graduates of Hong Kong universities who have been permitted to stay and work in Hong Kong under the Immigration Arrangement for Non-local Graduates (the “IANG”).  

Refund of stamp duty paid for the purchase of residential property in Hong Kong 

Individuals admitted under any of the foreign talent admission schemes (including the Top-Talent Pass Scheme, GEP, ASMTP, IANG and others) who purchase a residential property in Hong Kong and subsequently become Hong Kong permanent residents can apply for a refund of the “Buyer’s Stamp Duty” and the “New Residential Stamp Duty” paid on the first residential property purchased and still owned in Hong Kong.  

Camilla Venanzi | Erik Leyssens | Nicolas Vanderchmitt  

 

Hong Kong’s copyright law catches up with the digital age 

Hong Kong is updating its copyright law with the Copyright (Amendment) Ordinance 2022 (the “Amendment”) which enters into effect on 1 May 2023.  The Amendment provides better protections and clarity to copyright owners, users and providers in an era where technological developments have changed the ways in which copyrighted works are communicated, stored and used. 

The Amendment’s key areas of reform are: 

1. Recognising copyright owners’ exclusive and technology-neutral right to communicate their works to the public through any mode of electronic transmission. Whereas the existing regime limited copyrights to the “copying”, “performing, showing or playing” or “broadcasting” of works, the Amendment extends the right to all types of communication. Copyright owners will thus be permitted, for example, to take action against any unauthorized streaming of their works.
2. Imposing criminal sanctions for certain forms of communicating copyrighted works. Persons may be liable to criminal prosecution if they communicate copyrighted works to the public (a) for the purpose, or in the course of, a trade of business, for profit or reward; or (b) to an extent that the copyright owner suffers a prejudic They may defend against an accusation of copyright infringement by proving not to have known that the communication of the work amounted to infringement.
3. Introducing exceptions to the exclusive nature of copyrights.  The following use or transmission of copyrighted works will not constitute infringements: (a) their use by educational establishments for educational purposes; (b) the caching of data by online service providers (“OSP”); (c) the copying of sound recordings from one media format to another for private and domestic use; and (d) fair dealing for the purposes of criticism, review, performance, quotation, parody, satire, caricature, pastiche, reporting and commenting on current events, in certain circumstances.
4. Providing safe harbour provisions to OSPs. OSPs will escape liability for infringements which take place on their platforms, provided they (i) take reasonable steps to limit or stop the infringement as soon as practicable after becoming aware of the infringement; (ii) have not received any financial benefit from the infringement and (iii) do not interfere with measures taken by the copyright owners to identify or protect the copyright works. OSPs are deemed to have taken reasonable steps to stop or limit an infringement of copyright if they comply with the Code of Practice for OSPs published by the Secretary for Commerce and Economic Development.
5. Adding factors to consider when determining damages for infringement. In addition to factors such as the flagrancy of the infringement, courts may now take into account the following two new factors when determining the amount of additional damages for infringements: (a) the unreasonable conduct of the infringer after the infringement occurred; and (b) the likelihood that the infringing copies will be circulated widely as a result of the infringement.

Conclusion

While the Amendment is certainly a milestone in the updating of Hong Kong’s copyright regime, it is only a start. The Hong Kong government has announced that it will start a new round of review to deal with issues which have not been reflected in the Amendment, for instance in relation to data mining and artificial intelligence. 

Camilla Venanzi | Erik Leyssens | Nicolas Vanderchmitt  

 

Retirement Policy for Foreigners in China 

Does China’s statutory retirement age apply to foreigners working in China?

While mass protests continue to roil French cities to oppose a new policy that raises the retirement age from 62 to 64 and requires workers to contribute to the pension system for longer, the Chinese government will roll out a new policy to defer retirement age progressively. In China, the current statutory retirement age is 60 for male employees, 50 for ordinary female workers and 55 for female officers. The deferred retirement age under the new policy would be up to 65 years for all Chinese employees. 

Employment contracts in China will automatically terminate upon the employee reaching the statutory retirement age. However, this begs the question: does the deferred retirement age apply to foreigners working in China?  

Chinese law at the national level only sets the minimum employment age for foreigners, but it lacks explicit provisions of retirement age for foreigners. Each region has different views and judicial practices. In Shanghai, employment contracts with foreigners over China’s statutory retirement age are still valid, provided that the employer obtains the proper working permit for such foreigners. Beijing authorities hold the opposite view and advise that China’s statutory retirement age also applies to foreigners.  

In consideration of the different practices in China, employers must be cautious and take proper measures before executing the employment contracts with foreign workers, such as drafting specific clauses to take into account the situation of foreigners being expatriates or seconded in Mainland China. Even though the laws are supposed to be applied no matter the nationality of the concerned employee, there are specific exceptions. And legal loopholes are to be filled only contractually between the employer and the employee to avoid potential litigations.   

Helen Liu | Fanny Nguyen  

 

Significant Increase of trademark rejections in China!  

Chinese Trademark Office has strengthened its translation skills. 

Until recently, the Chinese Trademark Office was approving trademarks in foreign languages with usual international conditions, being legal, distinctive, original, and available for registration.  

However, since the amendment of the Trademark Law of People’s Republic of China (PRC) and the improvement of the translation software used by the Chinese Trademark Office, we have noticed a significant trend to reject the application of foreign trademarks. 

Do remember that the Chinese Trademark Office is the one receiving the most applications from everywhere in the world. This means that potentially a trademark similar to yours (when not identical) is already registered. If, on top of that, you add the fact that the Chinese Trademark Office considers whether your trademark has a similar meaning than a registered Chinese trademark, the risk to be rejected is higher.   

Now, the Chinese meaning check covers almost all the common languages including those used to be unfamiliar to the Chinese authorities. 

Even though it was already stipulated in Trademark Law of PRC (amended in 2019), ¹the exam of the meaning in Chinese of the foreign trademark was not exhaustive in the past due to language barriers, but now, the rejections are becoming frequent. 

More than ever, there is a need to register your trademark before entering the Chinese market and to ensure of its registration in advance.  

Estelle Chen | Fanny Nguyen  

 

Recent employment law updates 

Overseas Networks and Expertise (ONE) Pass 

The Overseas Networks & Expertise Pass is a personalised pass for top talent across all sectors. Since January 1st, 2023, it allows eligible applicants to concurrently start, operate and work for multiple companies in Singapore. Candidates who meet the salary criterion (i.e. earn or will earn a monthly salary of $30.000) or have outstanding achievements can apply. The duration of the pass for both first-time candidates and all subsequent renewals is 5 years. For more details, please refer to the Ministry of Manpower (“MOM”) website.

Introduction of Manpower for Strategic Economic Priorities Scheme 

The Manpower for Strategic Economic Priorities Scheme (“M-SEP Scheme”) supports the growth of Singapore-based companies. Since December 13th, 2022, the M-SEP Scheme gives firms some flexibility to temporarily hire S Pass and Work Permit holders above their existing Dependency Ratio Ceiling (“DRC”) and S Pass sub-DRC for 2 years. Eligible firms can obtain additional S Pass and Work Permit quota up to 5% of their base workforce headcount, subject to a cap of 50 workers per firm and fulfilment of the commitments listed on the MOM website.

Graciane Païtard – Albin | Astrid Cippe 

 

Multijurisdictional Cash-pooling agreement – do handle with care! 

Cash pooling allows a group of companies to centralise the management of funds in the hands of one designated entity, the “pool leader”. Two main types of pooling arrangements exist: (1) Notional Cash Pool where the cash is not physically transferred to the bank account of the pool leader; and (2) Physical Cash Pool where the cash is effectively transferred from the account of each pool member into the account of the pool leader on a periodic basis. In the case of (2), the pool leader technically becomes the owner of the cash, and the arrangement then has to provide terms and conditions for deposits made in the pool and drawdowns (loans) by the group members from the pool.  

There are various reasons for a group to implement a cash pooling, such as minimizing the cost of funding (allowing subsidiaries to use internal available funds instead of applying for bank borrowing), monitoring the cash position of the group, as well as managing possible foreign exchange exposures, and maximizing the group’s return by negotiating better terms with third party banks. 

However, it becomes obvious that these kinds of agreements do involve various pitfalls: 

• With respect to the delineation of the cash pooling
• With respect to the determining the arm’s length price of cash pooling transactions:
• Rewarding the cash pool leader function
• Rewarding of the cash pool members.
• Eventually, with respect to cash pooling guarantees.

In this context, the Organisation for Economic Co-operation and Development’s base erosion and profit shifting initiative has announced some regulations governing cash pooling arrangements in connection with transfer pricing rules, but the actual adoption of these pronouncements is undertaken by the participating countries.  

Regarding a cash-pooling agreement including Singaporean and French entities, Article 57 CGI (French General Tax Code) provides the French tax administration (“FTA”) with the possibility to notify additional assessments based on an assumed transfer of profit – without reason or for reasons considered insufficient by the tax administration – from a French company to another member of the same group outside France. Indeed, when applying Article 57 CGI, once it is established that there is a lien of dependency between two entities, FTA has the following options: 

• FTA can assume that the foreign entity has been granted an advantage from the French based entity in the event of the price being inferior or superior compared to prices applied between enterprises without lien of dependency (the French entity nevertheless having the option to contest such assumption by proving that it has received a counterpart being at least equivalent to the granted advantage); or
• FTA may bring evidence of an unjustified difference between the agreed price and the market value of the received counterpart (e. property transferred, or the service provided).

Having said that, the above-mentioned decision is particularly interesting for reason of the judges of the Council of State established a checklist regarding cash pooling arrangements. In the case on hand, a French company had entered in 2009 into a cash pooling agreement with a German company, the latter owning the entire share capital of the French company’s parent entity, another French company. The agreement provided for a specific formula (Euro Overnight Index Average minus 0.15 points) for any deposit made by the French company to the cash pool leader, which was a German entity. Under the agreement, the French company only made deposits but never needed a loan as it continuously generated a positive cash flow for the years subject to tax audit. However, for the years 2012 and 2013, the strict application of the formula under the cash pooling agreement would have resulted in a negative interest rate, obliging the French company to pay interest on its own deposits to the cash pool leader. Thus, the parties agreed to bring the negative interest rate to 0% instead. 

FTA assessed the French company for reason of having waived possible income, considering that the French company had committed an abnormal act of management by entering into the cash pooling agreement instead of privileging deposits with a financial institute and to receive interest rather than 0%. FTA’s position was confirmed by the appeal court, but the Council of State decided otherwise, providing in addition a checklist regarding cash pool agreements.  

Based on that jurisprudence, and although each case has its proper circumstances that shall be considered, we nevertheless deem it important to remind that cash pool agreements should comply with the following:

1. The existence of a proper documentation is indispensable. Although this seems like a basic requirement, it turned out that in the case on hand the detailed consideration of the existing agreement allowed the Council of State to detect legal errors committed by the appeal court in analysing the facts.
2. Ensure that at the time of entering into the cash pool agreement, the parties thereto have signed and executed the agreement by duly considering that its terms and conditions are on arm’s length basis.
   Indeed, in the case on hand, the Council of State has reminded that the agreement provided for a clear formula /(which parameters remained uncontested by FTA) and that external circumstances did result in the possible application of a negative interest rate. But at the time of entering into the agreement, the parties thereto could reasonably be considered as having acted on an arm’s length basis. 
3. Ensure that in the event of the circumstances changing while the agreement is still applicable, that the Parties thereto continue acting on arm’s length basis, which will be the case if the agreement provides for the right of the parties to renegotiate the terms and conditions of the cash pooling agreement.
   Indeed, in the case on hand, the Council of State confirmed that the fact that parties agreed to revise a negative interest rate (according to the formula) to 0%, indicated such right of renegotiating the terms and conditions. In other words, if the French company had blindly applied the cash pooling agreement by paying interest to the cash pool leader on its deposits, the French company would have acted against the company’s interest by granting a substantial advantage to the cash pool leader largely superior to the counterpart the French company would have received from a bank cash deposit instead. 

As mentioned earlier, although cash pooling agreements are a fabulous instrument for centralising the management of funds of a group, especially during difficult economic times, they must be handled with care, and a regular compliance review of the existing agreements appears more than appropriate. 

Wolfram Günther 

 

 

Relocating and setting up a new business gets easier in Japan 

Japan had stricter entry restrictions than many countries in response to the coronavirus pandemic. Until recently, it was not very easy to enter Japan to start a new business or to travel between Japan and other countries. However, entry restrictions were greatly eased last autumn and at the moment, with proof of vaccination against coronavirus or a negative test result, a simple online registration is all that is required to enter the country without any inspection or quarantine period upon entry. 

In line with the above, the number of foreigners entering Japan has recovered significantly in recent months: in 2022, the total number of foreign arrivals (new arrivals plus re-entry of foreigners living in Japan) amounted to 4.2 million, reflecting an increase of 1,088% compared to the previous year. The number of new arrivals was 3.42 million, reflecting an increase of 2,156% compared to 2021. 

This said, since before the pandemic, the Government of Japan had been encouraging highly qualified people from abroad to come to Japan to work and stay, as well as to start new businesses, in addition to the goal to increase the number of foreign tourists.

If you are highly skilled and wish to work in Japan, there is a system called the “Point-based system for highly skilled professionals”, whereby points are added up according to certain conditions, such as annual income and educational background, and preferential measures are taken, such as relaxed requirements for permanent residence permits and permission for your spouse to work. You may also invite your parents as well as a domestic worker from abroad to Japan. Emphasis must also be given to the speed of the visa process (5 days or faster). 

Kosuke Oie | Shunsuke Yahagi 

 

Commercial registration and signature certificate for directors 

You will be dispatched by the French head office to take up the position of director of a Japanese subsidiary. In doing so, you are asked to prepare a “signature certificate” for commercial registration. It seems necessary to see a French notary and send the original by international courier to Japan. 

Why do you have to prepare such a signature certificate? 

1. Legal basis
   When registering the appointment of a director in a commercial register of the company, a “seal certificate” of the new director shall be attached to his/her acceptance letter of directorship (Article 61(4) of the Regulation on Commercial Registrations). Also, when registering the appointment of a representative director elected by the board of directors’ meeting, a seal certificate of the directors and corporate auditors who attended the meeting shall be attached to the minutes of the board of directors’ meeting (Article 61(6) of the Regulation on Commercial Registrations). 
   Many Japanese citizens have their personal seal registered at the city hall. A seal certificate means a certificate of registration of his/her personal seal issued by the city hall. For foreigners, a notification by the Ministry of Justice issued in 2016 allows a “signature certificate” to be used for commercial registration applications instead of the seal certificate. The above two cases are probably the most standard cases where the signature certificate is required. 
2. Conditions to obtain the signature certificate
   Depending on the nationality, the residence place, and the authority who delivers the signature certificates, there are several practical options to obtain the signature certificates that can be used for commercial registration.As an example, assuming that the newly appointed director is a French national residing in Germany, the following signature certificates can be used:
   – Signature certificate authorized by a French official located in France (e.g., Paris City Hall)
   – Signature certificate authorized by a French official located in Japan (e.g., French embassy in Japan
   – Signature certificate authorized by a French official in Germany (e.g., French embassy in Germany)
   – Signature certificate notarized by a French notary located in France.Note that signature certificates prepared by lawyers or by a German notary cannot be used in the above case. 
3. Exceptions
   There are several important exceptions. First, a signed certificate of the new director is not required when he/she is “re” appointed as director. In addition, when it comes to a company with a board of directors, such signature certificate is required only for the new “representative” director, whereas it is not needed for a director without any title (in this case, a ID such as a passport is sufficient). Secondly, with regard to the signature certificates of the directors and corporate auditors participating in the board meeting at which the representative director was appointed, a signature certificate is not required if the former representative director attends the board meeting with authority and affixes the company seal registered under his/her name to the minutes of the board meeting. 

Kosuke Oie | Shunsuke Yahagi 

 

NEWS FROM LPA

Deal | LPA-CGR avocats (Shanghai) advised TRESCAL on the acquisition of a majority stake in Suzhou LECC Testing Technology (LECC), a company performing calibrations in 20 accredited domains for a diversified client portfolio encompassing over 2,000 clients in the transportation, life science, renewable energy and advanced manufacturing industries. See more

Award | Ayano Kanazuka (Partner, LPA Tokyo) received the “Nextcom Paper Award” from the KDDI Research, Inc. for her paper published in the information magazine “Nextcom”. The title of the paper is “Considering the Limits of Freedom and Liberty Constraints under Emergency Situations”. See more (in Japanese)

Ranking | LPA Singapore is honoured to appear on the IFLR1000 2022 rankings in the M&A category. It is a nice reward for the work accomplished so far by our team of associates and counsels. See more

Ranking | LPA Singapore appears to be ranked in the survey conducted by The StraitsTimes Singapore amongst clients of Singapore law firms. Our team has been rewarded by its clients for its M&A (5★), Commercial (4★) and Employment (4★) practices. See more

Ranking | LPA Shanghai is honoured to be recognised for the second year in a row, as a Firm to Watch in Corporate & M&A: Foreign firms in China by the Legal 500 edition of 2023. This award provides an opportunity for us to recognise and celebrate the achievements of our dedicated team of associates and counsels. See more

Team | Marie-Gabrielle du Bourblanc has been promoted to Counsel, with effect from 1 January 2023. The firm is thus strengthening its position on the France-Hong Kong axis where it has been established since 1998. See more

Team | Li Ke Cheng joined the Corporate and M&A Team of LPA Singapore as Associate on 1 January. Before joining LPA Singapore, he practiced in a leading international law firm in Singapore. He graduated from University College London. See more

Team | Moe Iehara joined LPA Tokyo as legal secretary on 1 February. She has more than 10 years of experience as legal secretary at several Japanese law firms, and graduated from the Collège Supérieur de Montréal (secrétariat juridique course).

Event | LPA-CGR avocats in Asia participated on April 18th in the cross-border Webinar event around “Keys to a successful M&A transaction in Asia” organized by the French Chambers of Commerce in Singapore, Hong-Kong, Shanghai and Tokyo and in partnership with Mazars in Asia as well as Havas APAC. Based on their extensive experience in Asia, our experts addressed insights to success when undertaking a M&A deal in the region. To watch the replay of the webinar, please click here

 

---

¹ Trademark Law of the People’s Republic of China (Amended in 2019) Article 11:
The following signs shall not be registered as trademarks: 

1. Those that only bear the generic names, designs, or model numbers of the goods;
2. Those that simply indicate the quality, main raw materials, function, use, weight, quantity or other features of the goods; or
3. Those that lack distinctive characteristics.

The signs referred to in the preceding paragraph may be registered as a trademark where they have acquired distinctiveness through use and are readily distinguishable.