Tax Incentives For Foreign Investment In China
In this article, we provide a clear explanation of tax incentives for foreign investment in China:
- Explanation of several welfare incentives and sectors for increasing foreign direct investment.
With the intention of increasing foreign direct investment (FDI) in China, the government has taken numerous measures to facilitate the same. This has led to the introduction of many welfare and incentive schemes conducive to foreign investors in certain industries and sectors. Some of them have been explained below:
- Small-sized and low-profit foreign companies, high technology, and new technology companies are eligible to lower income tax rates. It is 20% for small-sized and low-profit companies, high technology and new technology companies while the normal corporate income tax rate is 25%.
- TASE – includes Information Technology Outsourcing (ITO), Business Process Outsourcing (BPO), and Knowledge Process Outsourcing (KPO), are qualified for income tax benefits: eligible for a preferential Corporate Income Tax (CIT) rate of 15% and a higher education expense deduction cap of 8%. Income resulting from the offshore service contracts falling within this scope are entitled to Business Tax Exemption.
- Companies or projects focusing on technical/high-tech development, environmental conservation or protection, energy conservation, safeguarding of water resources may be eligible for various income tax incentives.
- Income earned by foreign enterprises through gains on stocks, interest, retirement pay, online work, and capital gains (net rental income and income from a business in which the taxpayer does not materially participate) from sources in China previously had to pay a withholding tax of 20%, which has since been reduced to a concessionary rate of 10%.
- Tax deductions for companies that reinvest their profits in China
- Import VAT exemption or deduction for a company that imports goods if the finished goods made of imported material is re-exported
- Technology transfer, technology development, and related services are exempted from business tax (BT) subject to the technical assessment of certain Science and Technology Commission and approval of related tax authority.
- If a foreign investor set up a company in one of China five Special Economic Zones, then the company can be entitled to the following advantages:
- Lower Corporate tax of 15%.
- A benefit of “2 + 3 years” means an exemption from tax for the first two years and tax at the rate of 12.5% for the next three years.
- For certain projects in basic infrastructure, environment protection, and energy there is a “3+3” years tax holiday.
- Under certain terms enterprises investing in integrated circuits, production can get a “5+5” years tax holiday.
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