Foreign businesses in western China could see their tax bills cut as the government lowers tax rates there in a bid to push FDI westwards.
Although most businesses in China pay Enterprise Income Tax (EIT) at a rate of 25%, Henry Tan, managing director of Nexia TS, says eligible companies investing in the west will be liable to pay EIT at a rate of 15% until the year 2020.
“Tax incentives for foreign businesses all but disappeared following the introduction of new EIT laws in 2008,” said Mr Tan. “But the central government’s focus on developing the country’s western regions means that reduced tax rates could again play a part in improving investment returns for foreign businesses. Some businesses could get a further boost from the extra tax benefits provided by many local governments.”
Industries that qualify for the 15% tax rate are largely focused on agriculture, forestry, environmental services, high-tech or high-end manufacturing, tourism, passenger transport, and infrastructure.
“Many foreign companies are likely to be attracted to the competitive tax rates that China’s western provinces offer,” said Mr Tan. “[Yet] they will also need to overcome some of the fundamental differences in language, custom and culture if they are to be truly successful in China.”