With so many tax breaks and concessions spread across so many different economic zones and business parks, it quite literally pays for foreign investors to keep up with China’s complicated fiscal policies.

Foreign investors can choose various vehicles to start their businesses: companies can be wholly owned or locally acquired, and joint ventures (JVs) can be established with Chinese partners.

Special concessionary tax policies apply to foreign investment entities like wholly owned foreign enterprises (WOFEs), JVs, and contractual JVs. The two most important documents in this respect are the ‘Act on Encouraging Foreign Investment’ and the ‘Regulation on Concessionary Tax Rates on Encouraging Foreign Investment’, but each locality has its own concessionary tax policies, as do the Special Economic Zones, Coastal Economic Zones and Economic and Technological Development Zones affirmed by the State Council of China.

Taking a break
China’s tax policies also encourage foreign investors to reinvest profits and transfer technology, as they are entitled to refunds on 40% of income taxes paid on amounts reinvested to either increase capital or to set up new FDI (foreign direct investment) ventures with an operating period of not less than five years. If FDIs directly reinvest to set up or to expand export production or advanced technology enterprises, then a 100% refund is due.

More foreign investors will be knocking on China’s door in the next decade to meet the huge domestic consumer demand and to benefit from the low-cost skilled labour force. An important priority is to keep up with China’s changing tax policies and regulations in order to legally and securely benefit from the tax system.

THIS ARTICLE IS REPRODUCED COURTESY OF SMART INVESTOR MAGAZINE