China offers foreign companies tax breaks as incentive to stay

29 December 2017

In response to Washington's tax overhaul, China is offering foreign companies a break on Chinese taxes as it tries to retain investment.

The measure announced late yesterday is Beijing's first major reaction to the US decision to cut corporate tax rates and comes after several promises by communist leaders to speed up the slowing economy, by opening more industries wider to foreign companies.

Foreign companies would not need to withhold taxes on profits they re-invest in industries specified by Beijing, the tax agency and finance ministry said. The breaks are retroactive from 1 January, 2017, which means companies would receive a refund on taxes paid this year.

Beijing wants to ''attract foreign investors after a host of countries unveiled similar measures to lure foreign and domestic investment,'' the official Xinhua News Agency said.

The exemption would apply to companies that re-invest profits in industries cited in government investment catalogues, according to the announcement. These include solar and wind power, ''green farming'' as also other fledgling fields in which Beijing is trying to develop technology.

According to supporters of the US, changes enacted this month say it would encourage investment in the US. Governments including Canada and private sector analysts have warned they could draw money away from their economies.

The temporary exemption "will create a better investment environment for foreign investors and encourage foreign investors to sustain their investments in China," according to a spokesman for the ministry of commerce.

Foreign companies have, however long complained of the bureaucratic hurdles, barriers to market access, and policies that favour local firms.

Though the new tax incentives aim to make China more attractive, they come with several restrictions.

According to finance minister Zhu Guangyao who spoke at a Phoenix TV finance forum earlier this month, China could not ignore the spillover effects from the change in tax policy of the world's largest economy.

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