CPO & Partners is proud to have taken part in the “Talk over Lunch with Paolo Gentiloni”, organized by the Italian Chamber of Commerce in China (CICC) in Shanghai.

Engaging directly with European Commissioner for Economy Paolo Gentiloni offered a valuable opportunity to reflect on Europe’s economic dynamics, the EU–China relationship, and the evolving landscape for Italian enterprises operating internationally.

Moments like these are essential to strengthening the dialogue between European institutions and the business community, while allowing us to provide our clients with strategic insights into global economic developments.

On December 24, 2025, China released the Catalogue of Encouraged Industries for Foreign Investment 2025, effective February 1, 2026, updating the list of sectors and activities eligible for preferential treatment, streamlined procedures, and operational advantages.

Compared to the previous version, the new Catalogue shows a broader scope – with 200+ new items and 300+ revisions – and a more targeted focus on:

• Advanced manufacturing, with items from terminal products and components to raw materials;
• Green technologies and modern services, such as lifestyle, consumer-facing, and digitalized service industries;
• Additional incentives for central, western, northeastern regions (underdeveloped areas), and Hainan.

Four preferential policies:

1. Customs duty exemptions for imported self-use equipment;
2. Preferential industrial land access – reductions down to 70% and more flexibility;
3. Reduced CIT (15%) for eligible projects located in western China and Hainan;
4. Tax credits for profits reinvestment into National Catalogue’s projects.

This update confirms China’s intention to attract foreign investment, especially when aligned with its high-quality growth, innovation, and regional development goals, offering a key instrument for recalibrating China and Far East investment strategies.

Pdf Source (Chinese language)

https://www.ndrc.gov.cn/xxgk/zcfb/fzggwl/202512/P020251224301773999332.pdf

On December 9, 2025, Francesco Marano took part in the “Zhejiang–Shanghai Connect | Jiaxing Special Event” held in Shanghai, delivering a speech focused on foreign investment projects in China.

His contribution addressed key aspects related to market entry strategies, investment pathways, and the role of tax and legal advisory in supporting cross-border operations within an evolving regulatory and economic framework.

The event provided a valuable platform for dialogue between institutions and international stakeholders, highlighting the importance of cooperation between European and Chinese business ecosystems.

A new policy notice on government procurement introduces a 20% price evaluation advantage for qualifying “Made in China” products – a move designated to strengthen domestic manufacturing while ensuring foreign-invested enterprises (FIEs) can still participate on equal footing.

Key points:

• Domestic products meeting specific transformation and cost criteria can enjoy a 20% bid advantage.
• Mixed procurement packages qualify as “Made in China” if 80% or more of the products are domestically produced.
• Stricter requirements apply to high-tech and security-sensitive components.
• A five-year rollout period followed by a 3-5-year transition ensures smooth implementation.

This policy underscores China’s push for high-quality industrial development, local innovation, and balanced global participation in its procurement ecosystem.

On November 13th, 2025, the European Commission agreed to eliminate the €150 customs duty relief threshold and potentially introduce “handling fees” on e-commerce packages as of 2026.

Given the evolution of the e-commerce model, this exemption is no longer justified and creates unfair competition. This initiative directly addresses the sharp rise in low-value B2C parcels shipped from non-EU platforms to EU consumers.

This measure aligns with the VAT framework already in force since 2021, which abolished the €22 VAT relief threshold, applying VAT on all commercial goods imported into the EU from third countries and requiring an import declaration.

The removal of the customs duty exemption threshold means that all goods, regardless of their value, will no longer be exempt from customs duties – ensuring fairer conditions between wholesale and retail importers.

Until mid-2028, a temporary system will be in place to facilitate duty calculation on low-value parcels; afterwards. the EU Customs Data Hub will centralize the entire customs processing.

This agreement marks a pivotal step in the modernization of EU customs procedures, paving the way for a more streamlined, transparent, and equitable system.

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CBAM – Final Phase: Sustainability as Market-Access Requirement

Starting January 1^st, 2026, the Carbon Border Adjustment Mechanism (CBAM) will enter into full force, introducing a carbon cost on imports with high embedded emissions – including aluminum, cement, electricity, fertilizers, iron and steel – to support more sustainable global trade.

The New Regulation (EU) 2025/2083 launches the definitive phase of CBAM, fully integrating climate policy into international trade.

Importers and their indirect customs representatives will be required to obtain the status of authorized CBAM declarant and operate through the EU’s digital CBAM Registry.

The annual CBAM declaration must be submitted by September 30^th of the year following the imports (first deadline: 2027), while the purchase of CBAM certificates to offset emissions will begin in 2027 for emissions related to 2026.

Updates:

• A de minimis threshold – 50 tons per year for CBAM goods, easing the burden on smaller firms.
• Reduction of the mandatory certificate holding requirement from 80% to 50% of quarterly emissions.
• Possibility for authorized declarants to delegate the CBAM declaration to a third party.

What to do?

• Check whether exempt due to the de minimis
• Apply for CBAM authorization before the end of 2025 (temporary waiver until March 31^st, 2026).
• Set up robust systems for collecting data on embedded emissions in imported goods.

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China postpones the new export controls on Rare Earths announced on October 9th, 2025

After introducing the first export controls on 7 Rare Earths (REEs) and their derivatives on April 4^th, 2025, China announced a second round of restrictions on October 9^th.

The new measures included export controls on an additional 5 REEs as well as a new extraterritorial provision, which – starting from December 1, 2025 – would have required a dual-use item export license issued by MOFCOM even for products manufactured outside China and destined for a third country, if containing raw materials or technologies of Chinese origin. The impact? Potential shipments disruptions, further delays, and significant administrative bottlenecks.

Following preliminary trade talks between Presidents Xi and Trump during the ASEAN Summit on October 30^th, China agreed to suspend the new restrictions for one year. Moreover, during a closed-door meeting between Chinese and EU representatives in Brussels, it was declared – though not yet officially – that the suspension would also apply to the EU.

On November 7^th, 2025, China formally confirmed the suspension of the new REEs export control measures until November 10^th, 2026. However, the controls introduced on April 4^th, 2025, remain in full force.

China Labor Compliance and High-Temperature Allowance

With increasing extreme summer temperatures in China, employers must implement measures to protect employees from heat-related health risks, including both physical safeguards and compliance with high-temperature allowance regulations. High-heat labor protection is governed by national legislation and local implementation rules, which determine allowance amounts, calculation methods, and applicable months for each province.

The law provides for a cash allowance based on specific heat conditions: for outdoor work a temperature equal or higher than 35°C, for indoor work a temperature equal or higher than 33°C with insufficient cooling. The cash allowance cannot be substituted with benefits like cold drinks, is subject to personal income tax, and is eligible for all staff, including interns, dispatch, temporary, hourly workers and foreigners under Chinese labor contracts.

Other employer duties include rescheduling working hours to avoid peak heat, providing cooling and protective measures (cooling devices, rest areas, cold water, PPE) and planning training sessions and health checks. Summer inspections by labor bureaus may occur and violations may lead to fines, retroactive worker compensation, and reputational damage.

Shanghai’s Plan to Improve the Tax Refund Environment for Departing Visitors

On July 3, 2025, the Shanghai Municipal Commission of Commerce, together with five departments, launched a 2025–2027 Action Plan to upgrade its departure tax refund system. The new policy allows foreign tourists to receive VAT refunds directly in-store through the “Refund-upon-Purchase” system, replacing the previous departure-based tax refund system. Foreign tourists shopping at eligible stores need to complete a refund agreement and credit card pre-authorization to receive an instant refund. At departure, they present goods, receipts, and ID to customs for verification. Lastly, a refund agency at the port finalizes the process.

In addition, the minimum spending threshold was reduced from ¥500 to ¥200 per store per day, while the daily refund cap rose to ¥20,000. Moreover, to encourage merchant adoption, Shanghai offers up to 50% equipment subsidies, cash incentives (¥5,000–¥10,000), and fee waivers for up to two years. Moreover, registration has been simplified, and credit requirements relaxed to include Grade M taxpayers.

Shanghai plans to boost over 80% of tax-refund stores to support instant refunds via card or mobile payment. Furthermore, it aims to expand to 3,000+ stores and 10,000 service points by 2027, with smart terminals, sealed-bag packaging, and multilingual tools improving efficiency.

China 2025–2028 Tax Credit Policy for Foreign Investors’ Reinvestment of Profits

On 27 June 2025, China’s Ministry of Finance, State Taxation Administration, and Ministry of Commerce jointly issued Announcement [2025] No. 2, regarding a 10% enterprise income tax credit that can be claimed by eligible foreign investors who reinvest profits (e.g., dividends, interest, royalties or other kind of income) in specified sectors. The policy applies from 1 January 2025 to 31 December 2028, with retroactive eligibility for qualifying investments made after 1 January 2025.

To qualify, reinvestments must be in industries listed in the Encouraged Industries Catalogue and take the form of capital increases, new enterprises, or equity acquisitions from unrelated, non-listed parties. Among those Encouraged Industries are agriculture, mining, manufacturing, construction, transport, IT, finance, R&D and others. The holding period of investment must be at least five years, and investments must be paid directly from the distributing enterprise to the investee. In addition, early withdrawal triggers tax repayment and proportional claw back of tax credits, and compliance is managed through the Ministry of Commerce’s Unified Platform.