Foreign Investment in China
November 2012, a series of new policies
have been implemented and many new
measures have been taken which have
greatly impacted foreign investment in
China. Here are some of them.
Preferential Tax Policies
and opening to foreign enterprises,
China launched super-preferential
tax policies for foreign investors in a
bid to speed up its economic growth.
For example, before the year 2008,
enterprise income tax rate was normally
15 percent for foreign investment
enterprises (FIEs), but 33 percent for
domestic companies. Some qualified
FIEs could even enjoy two years
exemption and three years 50 percent
exemption from enterprise income tax,
while domestic companies couldn't. On
tax policies, provincial governments then
issued further preferential tax policies,
one after another, in order to compete
with other provinces in attracting
more foreign investment into their
area. On top of national and provincial
level super-preferential tax policies,
county governments issued further tax
preferential policies, one after another, in
order to compete with other counties, and
so on. Such kinds of local preferential tax
policies normally included giving more
tax exemptions, tax refunds, etc. Many
of those local policies were beyond the
local governments' authority, and were
actually illegal. Domestic companies
have long been complaining of these
kinds of unfairly biased treatments.
On January 1, 2008, China's unified
Enterprise Income Tax Law finally took
effect. National level super-preferential
tax policies for FIEs were ended. But
local policies continued to exist.
Council issued a Circular of the State
Council on Reviewing and Regulating
Tax Preferential Policies, which requires:
violation of national laws cease to be
carried out from December 1, 2014,
and must be abolished;
not against national laws, must
be reported to State Council for
approval. If not approved, they must
also be abolished.
remarkable Circular, local governments
are now expected to compete with
one another in attracting investment
(including foreign investment) based on
the quality of their services and their
overall business environments, rather
than using tax incentives.
He has more than 20 years' experience in private practice. His
main practice areas include real estate, foreign investment,
corporate advisory, mergers & acquisitions and commercial
litigation/arbitration.
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