China offers tax break to foreign companies
BEIJING — China said Thursday that it would temporarily exempt foreign companies from paying tax on their earnings, a bid to keep U.S. businesses from taking their profits out of China after Washington’s overhaul of the U.S. tax code.
There is, however, a catch: To be eligible, foreign companies must invest those earnings in sectors encouraged by China’s government — including railways, mining, technology and agriculture — according to a statement from the Finance Ministry. The measure is retroactive from Jan. 1 this year, the ministry said.
Despite its appeal as a manufacturing hub, one where companies from around the world have set up operations to tap into a highly skilled workforce and strong infrastructure, China charges high taxes. On top of a standard corporate rate of 25 percent, companies are required to make social security contributions and other payments that push their tax burden higher than it is in many other countries.
The newly approved tax incentives in the U.S. could appeal to companies that are frustrated by China’s rising labor costs, ambitious local competitors and tangled legal systems, or those that would rather spend their money at home or elsewhere.
And officials in Beijing have worried that the overhaul could prove to be a challenge to Chinese laws that aim to keep money from leaving the country’s borders.