The Hindu Business Line : China’s new corporate tax code to spur foreign investments

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China’s new corporate tax code to spur foreign investments

Tax rate to be cut to 25% from 33%

New regime
China to offer industry-based incentives against the location-based system.
15% I-T rate will be applicable for high-tech, advanced tech enterprises.
Withholding tax exemption on dividends repatriated to foreign investors likely to go.

K.R. Srivats

New Delhi, Sept. 5

China is set to strengthen its position as an attractive destination for foreign investments, including from India, with the country carrying out tax reforms and formulating a new corporate income tax code that comes into effect from January 1 next year.

Billed as ‘Enterprise Tax Law’, the new code seeks to bring the standard tax rate for companies, both domestic and foreign, to 25 per cent as against the current level of 33 per cent. For small-scale enterprises with a small profit, the applicable tax rate would be 20 per cent.

In India, the basic tax rate is 30 per cent for domestic companies and 40 per cent for foreign companies, though the effective tax rate is much lower due to various exemptions.

Industry-based incentive

Under the new corporate income-tax code, China would move away from location-based incentives to industry-based (high-tech, infrastructure, environmental protection) incentives, according to Mr David Ling, Partner, KPMG China.

India, on the other hand, is aggressively promoting location-based incentives like in the case of special economic zones, though it has a mix of both industry as well as location-based incentives.

Mr Ling said at an international tax conference here today that in China, 15 per cent income-tax rate would be applicable for high tech and advanced technology enterprises particularly encouraged by the State. He also indicated that the current withholding tax exemption on dividends repatriated to foreign investors is likely to be removed.

Mr Kartikeya Bharat Ram, Chairman, CII (Delhi State Council), said that tax regime in any country plays a key role in investment decisions of corporates.

“As economies integrate further and capital acquires global mobility, tax practices and legislation of a particular country play even a greater role in investment decisions of both domestic and foreign investors,” he said.

With many Indian companies looking to expand their global footprint, tax experts point out that tax planning has become an important agenda in the boardroom and a clear understanding of the international tax strategies would help maximise the return on investments.

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