China is offering foreign companies a tax cut in a bid to keep companies’ earnings on the mainland, Caixin reports. The move is a response to the United States’ planned tax reforms that aim to attract American companies to bring their overseas cash back home.
The Chinese tax break will waive a 10% tax that China previously slapped on foreign companies’ profits from equity investments if these earnings are invested in government-targeted sectors, according to a statement issued by four government ministries on Thursday. The 348 targeted sectors include mining, rail, environmental protection and elderly care. The new policy will not affect the 25% standard corporate tax rate in China for both domestic and foreign companies.
The announcement comes just days after President Donald Trump signed a tax plan December 22 that, among other things, will cut the corporate tax rate from 35% to 21% and offers a one-time rate of 15.5% on overseas cash brought back to the US.
The tax exemption will be applied to foreign firms’ distributed profits, which refer to “dividends, bonuses and other equity investment income that derived from local enterprises,” said the statement.