Com­pa­nies rein­vest­ing prof­its can get tax break

China Daily (Hong Kong) - - FRONT PAGE - By CHEN JIA and WANG YANFEI

China con­tin­ues to wel­come for­eign in­vest­ment through a tem­po­rary ex­emp­tion of the with­hold­ing tax on prof­its that are rein­vested in the coun­try, the Fi­nance Min­istry said in a state­ment re­leased on its web­site on Thurs­day.

The move will help re­tain for­eign in­vest­ment and sta­bi­lize cross-bor­der cap­i­tal flows, an­a­lysts said.

The mea­sure aims to en­cour­age sus­tain­able and long-term for­eign in­vest­ment in China and im­prove the qual­ity of the business en­vi­ron­ment for for­eign com­pa­nies, the state­ment said.

The Min­istry of Fi­nance said more mea­sures to en­cour­age for­eign en­ter­prises to rein­vest their prof­its in China and avoid dras­tic cap­i­tal out­flow fluc­tu­a­tions will be re­leased in the com­ing months.

China levies its with­hold­ing tax at a rate of 10 per­cent on for­eign firms’ earn­ings. How­ever, that with­hold­ing tax can be ex­empted if that profit is

put into qual­i­fied di­rect eq­uity in­vest­ments, in­clud­ing stocks.

The state­ment said that for­eign in­vestors who get the tax ex­emp­tion must meet cer­tain con­di­tions. Their di­rect in­vest­ment should sup­port in­dus­tries that the coun­try en­cour­ages and the in­vest­ment must be trans­ferred di­rectly into the com­pa­nies re­ceiv­ing the in­vest­ment.

The tax ex­emp­tion will be retroac­tive from the be­gin­ning of this year, mean­ing for­eign in­vestors who have paid the tax can get a re­fund.

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.

The coun­try is ex­pected to con­tinue to ad­vance tax re­form next year, in­clud­ing a fur­ther re­duc­tion of val­ueadded tax and cuts in gov­ern­ment ad­min­is­tra­tive fees, with a view to low­er­ing en­ter­prises’ op­er­a­tional costs while im­prov­ing their prof­its, ac­cord­ing to Liu.

Ma Jun, deputy di­rec­tor of the Na­tional Academy of Eco­nomic Strat­egy un­der the Chi­nese Academy of So­cial Sciences, said it will par­tially ease im­pacts on China from the re­cent US tax over­haul that has just been signed into law by US Pres­i­dent Don­ald Trump, which re­duces cor­po­rate tax to at­tract global in­vest­ment into the US mar­ket.

“En­ter­prises that have large cross-bor­der cap­i­tal flows will be more af­fected, and the pol­icy is likely to be read­justed ac­cord­ing to changes in the global tax en­vi­ron­ment,” 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 US tax cut pro­gram, as that will re­duce the fis­cal ca­pac­ity of other coun­tries to im­prove their liv­ing stan­dards.”

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