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. 1118 West YanAn Road Suites 1103-1105, Cloud Nine Plaza, Shanghai, China 200052 +86 21 32200273 Fax hengtai-law.com |