Chinese government responds to u.S. Tax reform and the middle kingdom's foreign investment crackdown.
The finance ministry in beijing announced that foreign companies would no longer have to pay tax on their profits if they reinvested them in the country under certain conditions. The move is intended to revive foreign investment in china, the ministry said.
The regulation, which was published on the ministry's website on thursday, will take effect retroactively from 1 january 2009. January 2017, so that reimbursements can also be claimed for the expiring year. China wants to actively use foreign investment, demand it and improve its quality, the ministry said.
However, in order to be exempt from the tax, foreign companies must meet certain requirements for their new investments. Among other things, it is demanded that they invest in industries that are on the list, which are particularly demanded by the chinese government.
Foreign investment grew by only 1.9 percent in the first ten months of this year compared to the same period last year. But in november they made a jump of 90 percent, so that for the first eleven months an increase of 9.8 percent was achieved. Now, however, US president donald trump's tax reform, passed shortly before christmas, has increased the pressure on the school system.
American companies are then offered incentives if they repatriate their profits from operations abroad. The tax reform also lowers costs for companies in the u.S. And thus improves location factors. Experts on the chinese side saw the concern that capital could flow out or some american companies might even pull out of china. In germany, too, industry and companies have reacted by calling for reforms and simplifications.
In any case, the conditions for foreign companies in china have deteriorated, according to recent surveys. Local protectionism, lack of market access, rising costs, especially for personnel, and unfair predatory competition have been complained about. German and other european companies are also noticeably holding back on new investments in china.