China to offer tax breaks to foreign companies after GOP tax bill
A 10% tax that China has slapped exclusively on foreign companies’ profits from equity investments will temporarily be waved if the earnings are plowed into government-targeted sectors, according to a statement issued Thursday by four central government ministries.
The move will help retain foreign investment and stabilize cross-border capital flows, analysts said.
Foreign businesses are to be exempt from any withholding taxes on their profits that they re-invest in Beijing specified industries, said the tax agency and Finance Ministry.
China is offering foreign companies a tax cut in a bid to keep companies’ earnings on the mainland, Caixin reports.
China has been amongst the top destinations globally for investment for a long time, but enthusiasm has cooled from foreign investors.
Companies have three years to apply for the exemptions after paying tax.
Supporters of Washington’s tax changes enacted this month said they will encourage investment in the United States. The measure is retroactive to January 1, 2017, meaning that companies would be given a refund on the taxes they paid in 2017.
Liu Shangxi, head of the Chinese Academy of Fiscal Sciences, told China Daily that the new measure will help to stabilize foreign investment and reduce potential fluctuations of cross-border capital flows due to uncertainties in global economic growth.
According to experts, China is under pressure due to the ambitious U.S. tax reform adopted shortly before Christmas.
The announcement comes just days after President TrumpDonald John TrumpHouse Democrat slams Donald Trump Jr. for “serious case of amnesia” after testimony Skier Lindsey Vonn: I don’t want to represent Trump at Olympics Poll: 4 in 10 Republicans think senior Trump advisers had improper dealings with Russia MORE signed the new GOP tax plan into law, which includes measures like a lower corporate tax rate to attract manufacturers to the U.S.
China must carry out policy trials, he said.
Liu Yi, a professor at the School of Economics at Peking University, said, “It is not hoped that there will be a wave of tax reduction competition around the world motivated by the U.S. tax cut program, as that will reduce the fiscal capacity of other countries to improve their living standards”.