C loser E conomic f P artnership A rrangement Carlos Duque Simões Macau, 17 November 2011
Agenda 1. 1. Relevant ant entities es 2. 2. Legislati ation on - CEPA Annex exes es 3. 3. CEPA PA Suppl plements ements 4. 4. CEPA PA Certificati ation on Requirements ements 5. 5. Formal al vs. Material al Requirements ements 6. 6. Renewal al Proces ess 7. 7. Dual Challenges nges 8. 8. Corporat rate e Acqui uisitions ons 9. 9. Busines ness Suspens pension on 10. 10. Experi riences ences of MSS 11. 11. Final al Remarks 2
1. Relevant Entities Macau appointed entity is Macau Economic Services (MES) • MES has a department exclusively dedicated to CEPA: “CEPA Information Center“ Justice Department and IPIM also have relevant roles 3
2. Legislation – CEPA components Trade in Services Commitments for Liberalization (Annex 4) Definition of Service Supplier (Annex 5) Trade and Investment Facilitation (Annex 6) Trade in Goods List of products covered (Annex 1) Rules of Origin (Annex 2) Procedures for verification of Origin (Annex 3) 4
3. CEPA Supplements Macau CEPA Agreement was signed between Macau and PRC on 17 Oct. 2003 It has been subject to seven (7) supplements: i. Supplement I – signed on 29 October 2004 ii. Supplement II – signed on 21 October 2005 iii. Supplement III – signed on 26 June 2006 iv. Supplement IV – signed on 2 July 2007 v. Supplement V – signed on 30 July 2008 vi. Supplement VI – signed on 11 May 2009 vii. Supplement VII – signed on 28 May 2010 5
3. CEPA Supplements For products not covered under CEPA, it is always possible to take advantage of CEPA as an open agreement: Macao manufacturers may submit petitions twice a year (before 15 February and 15 August) to have those items in the subsequent phases of CEPA. DSE will enter into consultations with the Customs General Administration on the rules of origin for the products upon confirmation by the Ministry of Commerce. The two sides shall promulgate the relevant rules of origin (before 01.06 and 01.12 each year). Mainland shall (no later than 01.07 of the same year and 01.01 of the following year respectively) apply zero tariff treatment to these products. 6
4. Requirements for CEPA Certification of Goods For CEPA, the administrative procedures for claiming zero tariff benefits are: Macao manufacturers are required to submit information on their production facilities and other details of the products to the Certificate of Origin Issuance Division of DSE - Macao Economic Services (1st step) Upon verification, the applicants may then submit to the Division the properly completed “CEPA CO Application Form”, “CEPA Specific CO” and the original and duplicate of related business invoices (2nd step) 7
4. Requirements for the CEPA Certification for Service Suppliers Requirements for obtaining the MSS Certificate (Annex 5 of CEPA 2003) : 3 years of substantive business operation in Macao » For certain activities the min. is 5 years Commercial registration Relevant certificates issued by professional bodies Other required documents » for activities or providers under license 8
5. Formal vs. Material Requirements Company can be recognized as Macau Service Supplier (“MSS”) only when it has engaged in substantive business operations in Macau for 3 years Substantive business operations are defined as 3 consecutive years of business activities The criteria above are established by Annex 5 of CEPA, and supported by documents such as: Commercial Certificate issued by Macau Companies Registry Receipts of Corporate tax payments Certificate of ownership of rental agreement of business premises At least 50% of the payroll comprised by Macau residents 9
6. Expiry of Certification and Renewal Procedures CEPA License has a validity of 2 years 2 weeks prior to expiry date, license must be renewed, in order to maintain the same (a longer license or an automatic renewal process are not available) CEPA certificate (for the same business activity of the license) may only be applied during the 90 days period upon the license issuance 10
6. Renewal Procedures Execution of the Declaration by the applicant should be certified in Chinese i. by a Macau Government Notary or ii. by one of the five Macau Notaries officially recognized by the Chinese Authorities; and iii. further verified, examined and sealed by China Legal Services (Macao) 11
6. Renewal process The license holder shall submit the following documents: i. Certificate of the Macau Services Supplier (MSS) Application ii. Copy of the Applicant identification document iii. Copy of the first services supplier certificate granted to the license holder iv. Declaration(s) dully filled and signed by the applicant, one for each number of Certificate of MSS that the license holder intends to request 12
7. Dual Challenges For Macau Manufactures (MM) there will be mostly commercial challenges: a distributor has to be selected and appointed or a distribution network has to be set up; Right commercial contacts or partners; right pricing and marketing strategy; targets markets to be researched and identified. 13
7. Dual Challenges BUT for a MSS PRIOR to this there will be other issues: To set up a proper office structure in mainland China; to retain people both locally and from outside mainland China; to handle certifications from various authorities of mainland China, namely at provincial level; to comply with all regulatory requirements of the specific service industry; PLUS The commercial challenges 14
8. Corporate Acquisitions MSS is partially acquired by or merged with a foreigner services supplier (more than 50% of the share capital); Interruption of one (1) year after the acquisition will MSS status be reinstated; If acquisition is below 50% threshold, CEPA license shall remain valid and unaffected upon acquisition; If MSS shareholding is taken by another Macau or mainland China corporation (which eventually becomes the majority shareholder), such fact is not relevant for CEPA 15
8. Corporate Acquisitions CEPA essentially allows for foreign investors to benefit from Macau as a springboard to the mainland market IF: The foreign investor identifies a local Macau partner with a suitable strategy and size for the mainland market and The investor complies with the 50% threshold, with other shareholder retaining control of the MSS or MM 16
9. Business Suspension Maintenance of CEPA status implies continuity of Macau operations If Macau operations are suspended for a significant period, MSS will be prevented from producing renewal documents Mainland operations could be jeopardized by problems affecting Macau operations The Macau base (“root”) has to stay healthy 17
10. Experiences of MSS Often CEPA is our additional certification but not an effective offer or provision of services in mainland China A local partner (in mainland China) is sometimes necessary to know the market better and overcome the legal or regulatory requirements A foreign partner might also be necessary to bring the know how and or the capital required for a venture in a new and bigger market many applicants keep CEPA certification while on hold for market or business opportunities 18
11. Final Remarks Since January 2004 to October 2011, 415 MSS supplier certificates were issue MSS require additional assistance in identifying legal hurdles in mainland China Information channels, help desks and qualified consultants are essential to help MSS in knowing better the mainland framework and overcoming any regulatory and administrative hurdles in mainland China Not strictly a Government project, but Macau and mainland China Governments shall develop joint efforts for this second wave 19
Thank You! f
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