CHINA EXTENDS PREFERENTIAL POLICY ON REDUCED CORPORATE INCOME TAX RATES FOR QUALIFIED INVESTORS IN THE COUNTRY’S WESTERN REGIONS


4 June 2020 | Investment, Preferential policy | Written by Dr. Richard van Ostende | Reading time: 2 minutes


INTRODUCTION

In 2011 a preferential policy was introduced to attract foreign investors to China’s western regions. For a period of 10 years until 31 December 2020 qualified investors would be able to enjoy a reduced Corporate Income Tax (CIT) rate of 15% whereas the default CIT rate is set at 25%. This policy has been prolonged to December 31, 2030. Corporate Income Tax continues to be levied at a reduced rate of 15% for enterprises in the encouraged industries located in the western region.


CORPORATE INCOME TAX

In China, the standard rate for CIT has been set at 25%. Per January 2019 preferential tax policies for small and low-profit enterprises have been implemented. An organization qualifies as a small-scale taxpayer when it meets one of the following conditions:

  • Less than 300 employees

  • Annual sales less than RMB 30 million or

  • Holds assets less than RMB 50 million

According to the government, the preferential CIT rates will apply to 95% of corporate taxpayers and lower the total tax burden for qualified companies by 5% to 10%.


ENCOURAGED INVESTMENT LISTS

The "encouragement industry enterprises" refer to enterprises whose main business is based on the industrial projects specified in the "Category of Encouragement Industries in the Western Region". In our article Understanding China’s foreign investment Management System and Negative Lists we provide an in-depth analysis on how China manages and structures foreign investments.

In China, companies operate in accordance with a defined business scope, which can include multiple activities. Second requirement that must be met by investors to be able to enjoy the preferential tax treatment is that out of the total generated business income, a minimum of 60% of the income must be derived out of the main business activities listed as encouraged preferential industrial projects.


CHINA’S WESTERN REGION

China’s western region includes the following Provinces, Municipalities, Autonomous Regions and Prefectures:


SOURCES

  • Ministry of Finance of the People’s Republic of China. (2020). Announcement on Continuing the Income Tax Policy for Western Development Enterprises. MOF Announcement [2020] No. 23.


The information in this article is intended for general information on the subject matter. The content of this article is not intended to replace professional advice on the subject matter in relation to your specific circumstances.

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