I. EHS COMPLIANCE

EHS compliance related to the construction of manufacturing enterprises runs through all stages of project decision-making, project initiation, project design, project construction and acceptance. After the project is put into use, the compliance issues mainly involve the maintenance and test of regulated equipment and environment, and how to report EHS performance to the relevant competent departments.

1. Project decision-making stage

1) Preliminary approval of project land. The enterprise shall select the corresponding type of industrial land according to the characteristics of the products by the project and the accompanying EHS problems. In China, there are three types of industrial land: M1, M2 and M3. M1 is a class I industrial land, which refers to industrial land that has basically no interference and pollution to the environment of residential and public facilities, such as electronic industry, sewing industry, handicraft manufacturing industry, etc. M1 land generally corresponds to the environmental impact registration form; M2 is a class II industrial land, which refers to industrial land that has certain interference and pollution to the environment of residential and public facilities, such as food industry, pharmaceutical manufacturing industry, textile industry, etc. M2 land generally corresponds to the environmental impact report form; M3 is a class III industrial land, which refers to industrial land that has serious interference and pollution to the environment of residential and public facilities, such as mining industry, metallurgical industry, large and medium-sized machinery manufacturing industry, chemical industry, paper industry, tanning industry, building materials industry, etc. M3 land generally corresponds to the environmental impact report. The enterprise shall obtain the opinions on the preliminary approval and site selection of the project land from the local land management department.

2) Project initiation and approval (filing). Due to the different nature of enterprise investment projects, countries adopt different recognition policies. In China, in accordance with the requirements of the regulations on the administration of the approval and filing of enterprise investment projects, The Administration is in charge of approving those projects related to national security, the layout of major national productive forces, strategic resource development and major public interests. For projects other than those approved, filing management shall be implemented. The project approval or filing shall be handled through the national online approval and supervision platform for investment projects. In Thailand, India and other countries, if investment projects are included in the promotion catalogue of national investment projects, it is easy to obtain approval from the competent authorities and obtain preferential policies in terms of taxes, loans and so on.

2. Project design stage

At the project design stage, the enterprise shall get the construction land planning permit, construction project planning permit, fire protection permit and construction permit, and implement EHS related risk assessment according to legal requirements.

1) Obtain construction land planning permit. In China, in accordance with the provisions of the urban and rural planning law of the people's Republic of China, for a construction project that has obtained the right to use state-owned land by way of transfer, the construction unit shall obtain a construction land planning permit from the Urban and Rural Planning Department of the city and county. After the approval and filing of the construction project and the signing of the contract for the transfer of the right to use state-owned land, the approval of land planning permit is needed. In the United States, enterprises obtain construction land to build factories, and there is also a similar approval system in China. Before construction, enterprises should obtain a zoning permit from the planning department of the government at or above the county level.

2) Obtain construction project planning permit. In accordance with the provisions of the urban and rural planning law of the people's Republic of China, after obtaining the construction land planning permit, the construction unit shall obtain the construction project planning permit from the competent department of the government at or above the county level or the people's Government of the town determined by the people's government of the province, autonomous region or municipality.

3) Implement environmental impact assessment and obtain corresponding approval. For construction projects that may have an impact on the ecological environment, the construction unit shall carry out environmental impact assessment by itself or by entrusting a third party. In China, according to the provisions of the environmental code of the people's Republic of China, depending the characteristics of construction projects and the environmental sensitivity of the region where they are located, the environmental impact assessment of construction projects is subject to classified management based on the comprehensive consideration of the possible impact of construction projects on the environment, in accordance with the ecological environmental impact report, the ecological environmental impact report form and the ecological environmental impact registration form. The ecological environment impact report and ecological environment impact report form of the construction project shall be submitted by the construction unit to the competent ecological environment department with the right of examination and approval for examination and approval in accordance with the provisions. The State implements the filing management of the ecological environment impact registration form. In Thailand, India and other countries, for projects listed in the corresponding industry directory, the construction unit should also conduct environmental impact assessment by itself or by entrusting a third party, and obtain approval from the local environmental authorities.

4) Occupational health and safety assessment. For designated industries and projects and that may cause occupational and safety hazards, the construction unit needs to carry out occupational health and safety assessment by itself or by entrusting a third party. In China, according to the provisions of the production safety law of the people's Republic of China (2021 Amendment), the enterprises themselves or entrust a third party to carry out safety evaluation on construction projects of mining and metal smelting, and construction projects used for the production, storage, loading and unloading of hazardous substances, and obtain the review opinions of relevant departments on the design of safety facilities. According to the law of the people's Republic of China on the prevention and control of occupational diseases, if the construction project may cause occupational disease hazards, the construction unit shall carry out the pre-assessment of occupational disease hazards by itself or by entrusting a third party, and ensure that the design of occupational disease prevention facilities meets the national occupational health standards and health requirements. In the United States, the Occupational Safety and Health Administration (OSHA) requires enterprises to implement occupational health and safety assessment and notify employees of relevant hazard sources.

5) Fire protection design review (filing). For some construction projects, the construction unit shall obtain the review opinions on fire protection design from the local competent department before construction. In China, according to the Interim Provisions on the administration of review and acceptance of fire protection design of construction projects (2023 Amendment), the construction unit of special construction projects shall apply to the competent department for review. Other construction projects shall be filed.

6) Construction permit of project. For some construction projects, the construction unit shall obtain the construction permit from the local competent department before construction. In China, according to the provisions of the construction law of the people's Republic of China (2019 Amendment), before the commencement of a construction project, the construction unit shall apply to the construction administrative department of the people's government at or above the county level for a construction permit in accordance with the relevant provisions of the state.

3. Project construction and acceptance stage

1) Construction project completion acceptance. Before the construction project is put into use, the enterprise shall conduct completion acceptance. In China, according to the provisions of the construction law of the people's Republic of China (2019 Amendment), the construction project can be delivered for use only after it has been completed and passed the acceptance; Those that have not been accepted or fail to pass the acceptance inspection shall not be delivered for use.

2) Environmental completion acceptance and permit. Before a construction project is put into production or use, the construction unit shall check and accept the supporting pollution prevention and control facilities, and obtain the approval of the relevant departments when required. In China, according to the provisions of the environmental code of the people's Republic of China, before a construction project is put into production or use, the construction unit shall, in accordance with state regulations, conduct acceptance of the supporting pollution prevention and control facilities. In Thailand and India, after the environmental completion acceptance, the enterprise shall obtain the approval of the competent authorities.

3) Occupational health and safety completion acceptance. Before the construction project is put into production or use, the construction unit shall check and accept the supporting safety facilities and occupational disease prevention measures. In China, according to the provisions of the production safety law of the people's Republic of China (2021 Amendment), the construction unit shall be responsible for organizing the acceptance of safety facilities before the construction projects of mines and metal smelting, and the construction projects used for the production, storage, loading and unloading of hazardous substances are put into production or use. According to the law of the people's Republic of China on the prevention and control of occupational diseases, the construction unit shall evaluate the control effect of occupational disease hazards before the completion acceptance of the construction project, and then conduct the acceptance.

4) Fire protection completion acceptance (filing and spot check). Before the construction project is put into production or use, the construction unit shall check and accept the fire control facilities. In China, according to the Interim Provisions on the administration of review and acceptance of fire protection design for construction projects, after the completion and acceptance of special construction projects, the construction unit shall apply to the competent department for fire protection acceptance; It is forbidden to put into use those that have not passed or failed the fire control acceptance. Other construction projects shall be subject to the filling and spot-checking system.

5) Equipment registration regulated by laws and regulations. For the equipment regulated by laws and regulations, such as pressure vessels, lifting equipment, etc., the use license shall be obtained before use. In China, according to the provisions of the special equipment safety law of the people's Republic of China, the user of special equipment shall register with the Department responsible for the safety supervision and administration of special equipment and obtain the use certificate before or within 30 days after the special equipment is put into use.

6) Product registration. Before the production in some industries, enterprises should obtain product registration certificate. In China, according to the relevant legal requirements for the administration of drugs and medical devices, manufacturers of drugs and medical devices need to obtain product registration certificates. According to the relevant legal requirements of hazardous chemicals management, hazardous chemicals production enterprises need to obtain product registration certificates. Obtaining product registration certificate is a prerequisite for an enterprise to obtain a production license.

7) Discharge permit. Units that produce waste water, waste gas and solid waste shall obtain a pollutant discharge permit. In China, according to the provisions of the environmental code of the people's Republic of China, enterprises, institutions and other producers that implement the management of emission permits shall obtain emission permits in accordance with the provisions, and those who have not obtained emission permits shall not discharge pollutants. In India and other countries, different emission permits are applied for according to different pollutants.

8) Factory license or production license. Enterprises whose production equipment consumes energy and employees meet certain standards shall obtain factory licenses from local government departments before starting production. In India, if an enterprise does not use energy consuming equipment but has more than 20 employees, or uses energy consuming equipment but has more than 10 employees, it is required to apply for a factory license in accordance with the regulations. There is no requirement for factory license in China, but for the production of 14 categories of products such as hazardous chemicals, wires and cables, enterprises need to obtain industrial product production license. For some special industries, such as food, drugs and hazardous chemicals, enterprises should also obtain production licenses.

9) Business related licenses. In China, after the environmental impact assessment is approved, the business license can be applied for or changed. In the United States and other countries, if the name of a business is different from the company name of the approved business license, the enterprise should also obtain a business license (DBA) from the local competent authority.

10) Other items for licensing (filing). As for the emergency plan for environment and work safety, the enterprise shall file it with the local competent department in accordance with the requirements of laws and regulations.

4. Project use phase

After the use of the project, the enterprise shall carry out daily maintenance and repair of the equipment regulated by laws and regulations, fire-fighting equipment and EHS equipment; The equipment regulated by laws and regulations and some supporting parts shall be inspected and tested at the intervals specified by laws and regulations; Periodically test the occupational hazard factors in the atmosphere, waste gas and sewage according to the requirements of laws and regulations; Carry out occupational disease physical examination for personnel with occupational disease hazards in accordance with laws and regulations; Report the above EHS performance to the competent department in accordance with relevant laws and regulations.

II. TAX COMPLIANCE

From a global perspective, value-added tax (sales tax) and corporate income tax account for more than 80% of tax revenue, which are the two main types of taxes. The tax compliance in this chapter is limited to the identity authentication, tax rate, tax payable and tax preference of enterprise taxpayers of value-added tax and enterprise income tax.

1. Tax clearance. The enterprise shall obtain the tax permit and tax code. In China, the system of "five certificates in one" and "one license and one code" is implemented for enterprises. After the enterprise obtains the business license, the information will be automatically transmitted to the tax authority, which will carry out tax registration. The social credit code of the business license will be used as the tax registration code.

2.  Value added tax (sales tax) license. Enterprises should register as taxpayers of value-added tax (sales tax). Most countries such as China adopt the value-added tax system, levy taxes according to the value-added amount of different taxable transactions, and levy taxes in multiple links, so that the tax burden eventually transferred to consumers is low; In the United States and a few other countries, the sales tax system is adopted, and the sales tax is levied according to the price of the final product. Manufacturers in all links obtain resale certificates from the local government to prove that they are not consumers, otherwise they will pay taxes. Therefore, at each stage of the production process, the value and profits of goods will be taxed, and the competent departments at different levels from states to counties and cities will also impose sales tax, which will be translated into a higher total tax, and the carry-over price will continue to rise in the form of higher commodity and service costs, and the final tax burden will be borne by consumers. In China, according to the notice on unifying the standards for small-scale taxpayers of value-added tax ([2018] No. 33), taxpayers with annual sales of value-added tax of 5  million CNY or less should be registered as "small-scale taxpayers" of value-added tax, otherwise, they should be registered as "general taxpayers" of value-added tax in accordance with the requirements of the announcement of the State Administration of Taxation on matters related to the registration and administration of general taxpayers of value-added tax ([2026] No. 2). The value-added tax rate for taxable transactions of general taxpayers calculated according to the general tax calculation method is 0%, 6%, 9% and 13%. 13% is the main tax rate, 0% is applicable to special transactions such as export goods, and 9% is applicable to taxable transactions such as sales of agricultural products, transportation, postal services, basic telecommunications, construction, real estate leasing services, sales of real estate, transfer of land use rights, etc.; The 6% tax rate is applicable to taxable transactions of other sales services and intangible assets. For small-scale taxpayers and general taxpayers who use the simple tax calculation method, the collection rate of VAT is calculated to be 3%.

3. Enterprise income tax license. Globally, some countries collect enterprise income tax according to the amount of profits; Some countries charge enterprise income tax based on sales and profit. China collects enterprise income tax according to the amount of profits:

1) Enterprise income tax payers include resident enterprises and non-resident enterprises. Resident enterprises refer to enterprises established in China in accordance with the law, or enterprises established in accordance with the laws of foreign countries (regions) but with actual management organization in China. Non-resident enterprises refer to enterprises that are established in accordance with the laws of foreign countries (regions) and whose actual management organization is not in China, but have establishments or places in China, or have no establishments or places in China, but have income from sources in China. A resident enterprise shall pay enterprise income tax on its income derived from sources within and outside China. A non-resident enterprise that establishes an establishment or place in China shall pay enterprise income tax on the income derived from sources within China by its establishment or place, and on the income derived from sources outside China but actually connected with its establishment or place. Where a non-resident enterprise does not have an establishment or place in China, or the income obtained from the establishment of an establishment or place has no actual connection with the establishment or place it has established, it shall pay enterprise income tax on its income from sources within China.

2) The tax rate of enterprise income tax is 25%, and the tax rate applicable to the second kind of income for non-resident enterprises is 20%. 

3) The calculation formula of enterprise tax payable is: tax payable=taxable income × applicable tax rate - tax deduction - tax credit. There are generally two methods for calculating taxable income: (1) direct calculation method. Taxable income=total income - nontaxable income - tax exempt income - various deductions - making up losses; (2) Indirect calculation method: taxable income=total accounting profit ± amount of tax adjustment items. Enterprises generally use the indirect calculation method to calculate the taxable income. The amount of tax adjustment items includes two aspects: one is the amount that should be adjusted if the scope of items specified in the enterprise accounting system is inconsistent with the scope of items specified in the tax laws and regulations. For example, transactional financial assets are measured at fair value in accounting, and the tax law uses historical cost as the tax basis. When calculating the taxable income, the enterprise increases or decreases the difference between fair value and historical cost; the other is the amount to be adjusted for the difference between the deduction standard stipulated in the enterprise financial accounting system and the deduction standard stipulated in the tax law. For example, the general industry accounting system can deduct 100% of the advertising expenses, but the tax law stipulates that the deduction can only be made at 15% of the sales revenue. When calculating the taxable income, the enterprise should increase the taxable income according to the difference between the actual expenses paid and the sales revenue of 15%. The tax deduction means that enterprises can enjoy tax deduction according to the law. For example, high-tech enterprises and small low-profit enterprises can enjoy 15% and 5% low tax rates below the basic tax rate of 25%, and the difference is tax deduction. The tax credit is the tax that can be deducted by the enterprise according to the law. For example, the tax credit for environmental protection, water saving and safety equipment is 10% of the sales, and the domestic income tax can be deducted from overseas income.

4) In India and other countries, for different sales, different tax rates are applied to levy basic enterprise income tax. The higher the turnover, the higher the tax rate; At the same time, in consideration of the different profits of enterprises, the additional enterprise income tax will be levied according to a certain proportion of sales.

4. Tax preferences

Tax preferences for value-added tax and enterprise income tax include tax base relief, tax rate relief and tax amount relief.

1) VAT preferences

(1) Tax base relief. Tax base reduction and exemption is a way to directly reduce the tax basis to achieve tax reduction and exemption. For small-scale taxpayers with taxable transactions and sales volume not reaching the threshold, VAT shall be exempted; If it reaches the threshold, VAT will be calculated and paid in full. Before December 31, 2027, the threshold is 100,000 CNY of monthly sales. If a quarter is taken as a tax period, the threshold is the quarterly sales of 300,000 CNY;  

(2) Tax rate relief. Tax rate relief is a tax reduction and exemption implemented by directly reducing the tax rate. For small-scale taxpayers who have value-added tax taxable transactions other than the sale, lease of real estate or transfer of land use rights, the value-added tax shall be levied at the rate of from 3% to 1%.

(3) Tax amount relief. Tax amount relief is a tax reduction or exemption implemented by directly reducing the amount of tax payable. Prior to December 31, 2027, advanced manufacturing enterprises shall accrue the current additional deduction at the rate of 5% of the current deductible input tax; Integrated circuit enterprises and industrial mother machine enterprises shall accrue the current additional deduction at 15% of the current deductible input tax.

2) Enterprise income tax preferences

(1) Tax base relief. A) Within a tax year, the part of the qualified technology transfer income of a resident enterprise that does not exceed 5 million CNY is exempted from enterprise income tax; For the part exceeding 5 million CNY, the enterprise income tax shall be reduced by half. B) If the R&D expenses actually incurred in the R&D activities of the enterprise are not transformed into intangible assets, but included in the current profits and losses, they will be deducted on the basis of actual deduction as required, and then be calculated and deducted before tax at 100% of the actual amount from January 1st, 2023. If the intangible assets are formed, they will be amortized before tax at 200% of the cost of the intangible assets from January 1st, 2023. For integrated circuit enterprises and industrial mother machine enterprises, If an intangible asset is not formed, 120% of the actual amount will be deducted before tax from January 1, 2023 to December 31, 2027; If an intangible asset is formed, it shall be amortized before tax at 220% of the cost of the intangible asset during the above period. C) If an enterprise's fixed assets really need accelerated depreciation due to technological progress and other reasons, it may shorten the depreciation period or adopt the method of accelerated depreciation. For the newly purchased fixed assets of enterprises in six industries including biological medicine manufacturing and special equipment manufacturing, and four key industries including light industry and automobile, the depreciation life can be shortened or the method of accelerated depreciation can be adopted. For newly purchased instruments and equipment specially used for research and development by enterprises in all industries, if the unit value does not exceed 1 million CNY, it is allowed to be included in the current cost at one time and deducted when calculating the taxable income, and depreciation will not be calculated by year; If the unit value exceeds 1 million CNY, the depreciation life can be shortened or the method of accelerated depreciation can be adopted. For the fixed assets with a unit value of no more than 5000 CNY held by enterprises in all industries, it is allowed to be included in the current cost at one time and deducted when calculating the taxable income. Depreciation is no longer calculated by year. If the unit value of the equipment and appliances newly purchased by the enterprise from January 1st, 2024 to December 31st, 2027 does not exceed 5 million CNY, it is allowed to be included in the current cost at one time and deducted when calculating the taxable income, and depreciation is no longer calculated by year. D) The income from the production of products that are not restricted or prohibited by the state and meet the relevant national and industrial standards with the resources specified in the catalogue of preferential corporate income tax for comprehensive utilization of resources as the main raw materials shall be included in the total income of the enterprise at a rate of 90%.

(2) Tax rate relief: A) for eligible small low-profit enterprises, the enterprise income tax shall be levied at a reduced rate of 20%. Small low-profit enterprises are enterprises that engage in industries that are not restricted or prohibited by the state, and meet the three conditions of annual taxable income of no more than 3 million CNY, no more than 300 employees, and total assets of no more than 50 million CNY. Before December 31, 2027, the taxable income of small low-profit enterprises shall be calculated at a rate of 25%, and the enterprise income tax shall be paid at a rate of 20%. B) For high-tech enterprises that need key support from the state, the enterprise income tax shall be levied at a rate of 15%. C) Non-resident enterprises shall be subject to enterprise income tax at the rate of 10%.

(3) Tax amount relief. Enterprises' investment in purchasing special equipment for environmental protection, energy and water conservation and work safety can be subject to tax credit at a certain proportion. If an enterprise purchases and actually uses the special equipment for environmental protection, energy and water conservation, and work safety specified in the catalogue of preferential corporate income tax for special equipment for environmental protection, the catalogue of preferential corporate income tax for special equipment for energy and water conservation, and the catalogue of preferential corporate income tax for special equipment for work safety, 10% of the investment amount of the special equipment can be deducted from the tax payable of the enterprise in the current year; If the credit is insufficient in the current year, it can be carried forward in the next five tax years.

CONCLUSION

EHS and Taxation Compliance are crucial to the success of an enterprise's investment construction. From a practical point of view, it is recommended that enterprises establish a cross functional team, invite legal and technical experts in EHS and taxation to participate in the project when necessary, and implement EHS and Taxation Compliance throughout all stages of project management. The cross functional team should establish an audit plan to ensure that the audit is completed before important nodes, identify non-compliance issues early, and reduce unnecessary rectification costs in the later stage.