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China Eases Taxes for Foreign Companies
By: Paul J Davies in Hong Kong
China will cut taxes on the profits that foreign companies take out of the
country by up to 50 per cent after rules on withholding taxes were relaxed
to encourage more overseas investment.
The move will also apply to dividends paid by Chinese listed companies to
foreign shareholders through the Qualified Foreign Institutional Investor
scheme. In both cases, the lower tax rates will apply only to companies and
shareholders based in countries, such as the UK, that have double taxation
agreements with China.
The changes could save companies billions of dollars worth of tax payments,
which might initially lead them to repatriate more profits, but ultimately
should provide incentives for more investments, according to experts at KPMG
. US companies, however, cannot benefit as they are taxed on a global basis
by US authorities.
“The bigger picture is that because of the economic situation globally over
the past couple of years, China sees the need to create a friendlier
environment for foreign investors,” said Khoon Ming Ho of KPMG China. “
This comes just as many companies are applying to make remittances of their
half-year dividends.”
The relaxation of the rules comes after almost a year of consultation
between Chinese tax authorities, tax experts and companies. The effect will
be to make it much simpler and quicker to cut withholding taxes paid on
dividends from 10 per cent to as little as 5 per cent, depending on the
owner’s country of residence.
Last year almost $65bn worth of dividends was repatriated, according to the
State Administration of Foreign Exchange, which manages the bulk of China’s
foreign exchange reserves. KPMG said official data showed that Rmb45bn ($8.
6bn) of withholding taxes were collected last year, which accounted for more
than half of total corporate taxes paid in China by foreign companies.
Withholding tax reductions were first introduced in late 2009, but companies
had to meet a long list of criteria that the vast majority failed to
satisfy. Any company listed and resident in a country with a tax treaty with
China will now automatically qualify for the relief on dividends from
Chinese operations or wholly owned subsidiaries, according to two regional
governments. |
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