Preferential taxation policies foreign-funded enterprise enjoy in China

Updated: 2013-12-04

Income Tax

Income tax rate: The current rate of income tax imposed upon foreign investment enterprises is 33%, though set at the lower rate of 15% in special economic zones, national hi-tech industrial zones and national grade economic and technical development zones. In coastal regions and provincial capitals the rate is 24%.

Tax-reducing policy: Foreign investment enterprises may enjoy the benefit of business income tax not being collected during the first two years after the beneficial year; a half income tax may be imposed for the succeeding 3 years.

Foreign investment enterprises in central and western regions are encouraged by the State via 5 years' of tax reductions, with the possibility of a further 3 years' half income tax thereafter.

Advanced-technology companies can be exempted from income taxes for two years; and are then subject to a half income tax for the following six. Export enterprises enjoy a two years exemption and three years at half rate.

Turnover Tax

From January 1, 1994, China started to implement a unified Value Added Tax, consumption tax and business tax in foreign invested enterprises while abolishing industrial and commercial consolidated taxes. Foreign enterprises and foreign invested enterprises are exempted from business taxes in technological transfers. If the foreign invested enterprise purchases equipment made domestically within the volume of total investment, there is a benefit of a refund of a value added tax.

Import Tax

Tariff Rate: The Chinese government has lowered import tariff rates; the current rate is 12% and China's WTO concession will render the tariff lower, according to an agreed time line.

Tariff Exemption Policy for Equipment Imports: The importation of equipment for foreign or domestic-invested projects, which are supported by the State, shall be granted a tariff and import stage value-added tariff exemption. Provided that the foreign-invested product is subject to the Category of Encouragement, all equipment imported for its use within the aggregated investment shall be exempted from tariff and import-stage value-added taxes (unless the project comes under the heading of those not entitled to Tariff Exemptions). The policy could expand the use of foreign investments and to encourage an influx of foreign technology to maintain a developing domestic economy.