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  • Doing Business In China | Taxes Incentives and other Benefits

    April 15 2014

    In this post we will discuss the incentives granted to foreign investors in China. Do not hesitate to contact me if you have any question in relation to this matter at corporate@offshorepremium.com     This post is published as a courtesy of www.offshorepremium.com

    A foreign investor who wants to invest in China will benefit from what I call factual incentives as well as incentives granted by the government.

    Factual Incentives

    The factual incentives are those which are inherent to China such as extremely low labor costs (but this will change over time)  and the fact that China is the biggest single market in the world and that the buying power of Chinese people will continue to increase over the year. In this context it is difficult to ignore China as a destination of investment

    As to tax incentives granted by the Chinese government they are based on the following system

    • General tax exemptions or benefits applicable to all investors
    • Location based tax exemptions (those granted for example to investors that invest in special economical zones)
    • Activity based tax exemptions (those granted to certain type of businesses for example high technologies based businesses)

    Normal Corporate Income Tax

    The normal corporate income tax rate is 25%  and 20% for small or law profits companies

    Location Based Tax Exemptions

    If a foreign investor set up a company in one of China  five Special Economic Zones or in Shanghai Pudong economic zone then  he may benefit of the following advantages.

    •  Capped Income Tax Rates at a rate of 15%
    • Depending on the activity the foreign investor is investing into he can get a 2+3 years or a 3+3 years or a 5 + 5 years further tax holiday. During the first period of 2,3 or 5 years depending on the circumstances the company will be totally exempted from corporate income tax. During the second period of 3 or 5 years the company will only paid 50% of corporate income tax that is to say at a rate of 7.5%. Thereafter the company shall be taxed at 15%

    Activity Based Incentives

    For example companies investing in High Technologies Sector will benefit of a 15% reduced rate of taxes wherever they are investing and are also eligible to a further 50% deduction for Research and Development expenses.

    Other type of incentives

    There are many other types of incentives

    •  A 50% deduction applicable for salary costs of disabled employees
    • Tax deductions for companies that reinvest their profits in China
    • Import VAT exemption or deduction for company that import goods if the finished goods made of imported material is re-exported

    Do not hesitate to contact me if you have any question in relation to this matter at corporate@offshorepremium.com

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