China confirmed on Sunday through the office of the finance ministry its plans to expand a preferential policy which temporarily exempt re-invested profits by foreign firms, a way to further boost capital inflow into the country amidst trade tensions with the US government.
According to ABS-CBN News, Beijing has widened the policy exempting overseas investors from withholding income tax on the re-investments made in the country. One of its goals is to encourage more inbound investment as China continues to deal with the looming threats brought by the on-going tariff war with Washington.
Such policies, however, only covered select investment portfolios vouched by the Chinese government. Still, the scope of the tax exemption has now been expanded to all sectors where various international investments are no longer prohibited, the document released by the ministry together with three other national finance departments.
This decision, as added by the government agency, is seen as a way to further boost the foreign investments made in China.
Moreover, this is just but one of the many strategies that the Xi Jinping administration has come up with to attract more foreign investments which could further bolster the economy.
Shanghai, for example, has now been reaping the fruits of its much improved business environment thanks to its economic restructuring and intensified industry upgrading. Earlier reports pointed out the local government's move to issue faster business approval procedures as part of its accelerated efforts to ease out on business restrictions.
This new tax exemption policy was made effective earlier this year. This means that companies that have already paid their dues for 2018 will be duly refunded.
For the first eight months since the expanded policy was kickstarted, the number of new internationally-funded companies all throughout China has more than doubled to more than 41,000, the Ministry of Commerce said.
Tax On Overseas Investments
As clarified over at Xinhua Net, equity investment returns (EIR) refer to the profits being distributed to foreign investment firms. The document cited by the state-run news agency further indicated that the EIR also include dividends as well as corporate bonuses.
However, there are some exclusions cited in the provision for the reinvestment of the profits like purchases of publicly listed shares by companies, except those that are considered qualified strategic investments.
In China, the standard corporate tax rate is at 25 percent but companies have been given the advantage to make profit deductions based on several conditions like making charitable donations in the locality.
