ZCZC
BCN-13
CHINA-ECONOMY-TAXATION-ENTERPRISES
China temporarily waives taxes to get foreign firms to stay
BEIJING, Dec 29, 2017 (BSS/AFP) – China will temporarily waive income taxes
for foreign companies on profits they reinvest in the country as Beijing
battles to retain foreign firms and investment.
The finance ministry announced Thursday the new tax policy, which will
apply retroactively from January so businesses will be able to take advantage
of the exemption for this year’s taxes.
The new incentives for foreign business to keep their earnings in China
follow the passing last week of a corporate tax overhaul in the United
States.
The US reform will lower the tax rate for most corporations to 21 percent.
Businesses in China pay 25 percent.
The temporary exemption “will create a better investment environment for
foreign investors and encourage foreign investors to sustain their
investments in China,” a spokesman for the ministry of commerce said.
The policy announcement also comes as China has struggled with capital
flight and tightened capital controls this year to stem the outflow of money.
But foreign companies have long complained of the onerous bureaucracy they
must navigate, barriers to market access, and policies that favour local
firms.
The new tax incentives aim to make China more attractive but come with a
slew of restrictions.
To be eligible, the profits must be invested in industries and activities
where the Chinese government encourages foreign investment: manufacturing,
services, research and development.
Locations in the west of the country are also prioritised for development.
Companies have three years to apply for the exemptions after paying tax.
Beijing has been keen to retain foreign investment after it fell in 2016.
But commerce ministry statistics show that foreign direct investment ticked
upwards for the first 11 months of this year, when compared with last year.
Vice Finance Minister Zhu Guangyao told a Phoenix TV finance forum earlier
this month that China could not ignore the spillover effects from the change
in tax policy of the world’s largest economy.
China must carry out policy trials, he said.
BSS/AFP/MR/ 1510 hrs