Investing in China - Provincial and Local Tax Incentives

Chinas national government offers a tempting variety of financial incentives designed to lure inbound foreign investment, some of which were introduced by this author in the article Investing in China: Tax Incentives. However, additional incentives offered by provincial and local governments significantly sweeten the investors overall incentive package. These incentives tend to become more generous as one moves westward from the investment-saturated coastal provinces to Chinas heavily populated interior, allowing the investor to cash in on Chinas fierce domestic competition.

Central Chinas Henan province, for example, offers manufacturing-oriented Foreign Invested Enterprises (FIEs) 100% waivers of business tax and a variety of local administrative fees. Furthermore, FIEs engaged in technology transfer, development work, and related consulting may apply for a full refund of business tax already paid.

Municipal governments, however, are often even more generous than provincial governments. Although various incentives are offered by Chinese municipal governments, the city of Zhengzhou (a metropolis of about 4.4 million people in central China) makes a good case study, if for no reason other than that the author is more familiar with its policies.

Zhengzhou rewards local FIEs in various ways:

Tax Breaks for Local Reinvestment of Profits Local FIEs that reinvest their profits within Zhengzhou will receive a 30% refund of the locally retained portion of corporate income tax actually paid on these reinvested profits (the national government offers an even bigger tax refund applicable to the nationally retained portion).

Investment in Pillar Industries and State-owned Enterprises Zhengzhou offers a three-year, 50% refund of the locally retained portion of corporate income tax paid on FIE funds invested in certain designated pillar industries. It also offers a financial incentive for investing in and reorganizing provincially administrated state-owned enterprises, and this incentive is magnified if the FIE retains a certain percentage of the enterprises original employees after reorganization.

Inward Remittance of Export Earnings Zhengzhou offers export incentives in the form of cash payouts of approximately 0.2% to 0.5% of every dollar of hard currency export earnings remitted inward (the highest payouts are reserved for the export of technologically advanced products).

Matching Funds The Zhengzhou municipal finance administration will provide one-to-one matching funds for the international market development funds of small and medium-sized export enterprises that are supervised at the provincial level (whether an enterprise is supervised at the provincial level or the national level depends on how much money has been invested in the enterprise, i.e., its Registered Capital).

Anti-Dumping Insurance Zhengzhou will assist FIEs in responding to anti-dumping initiatives, and will also subsidize expenses arising from participation by exporting enterprises in anti-dumping responses, as long as these initiatives are not otherwise subsidized by national and provincial authorities (which they often are). It may seem strange for an American company to establish a subsidiary in China, be sued for dumping by the United States, and then receive subsidies from the Chinese government for the expenses necessary to defend against the suit, but its possible.

Interest Subsidies for Loans Secured by Tax Refund Accounts. Zhengzhou will subsidize an amount equal to 70% of the interest due on loans secured by a tax refund account. If the FIE has no such loans, Zhengzhou will grant a subsidy equal to 50% of the interest that would have been paid on such a loan had it been taken out the Zhengzhou municipal government will even provide the fund from which the interest is subsidized. Enterprises with an export volume of five million US dollars or more in the previous year that are verified by the National Tax Bureau to have increased tax refunds due for the current year will enjoy a 100% interest subsidy.

Export Incentives An export enterprise with either (i) a yearly export volume of at least ten million US dollars or more and actual export growth of more than 25% over the previous year, or (ii) a yearly export volume of at least five million US dollars, actual export growth of more than 40% over the previous year, and inward remittances from exports of at least 80%, will be designated a Zhengzhou City Advanced Foreign Exchange Generating Export Enterprise and awarded 30,000 RMB (roughly $3,500 US dollars) as long as it has not committed any serious regulatory violations during the same year.

Although a few of the foregoing incentives represent relatively small payouts, they are numerous and can make a significant difference when combined with the broad range of incentives offered by the national government.

David Carnes is licensed to practice law in California. He speaks and reads Mandarin Chinese and has several years experience working with Chinese law firms and Sino-American joint ventures. Check out his website, Import From China.

Investing in China - Tax Incentives Offered by the Chinese Government
The Peoples Republic of China offers a variety of tax breaks and financial incentives to encourage inbound investment.Nationa...

Does the Canadian Health Care System Cover Those Visiting Canada?
The Canadian Health Care System is based on several socialized health insurance plans providing full coverage to Canadian cit...

Outsourcing to China
With many people in China willing to work for $5.00 per day or less you can imagine the benefits to a company, which has a pr...

Email Holiday Strategy -Not Just For Christmas
If your business sees a rise in sales during any of the holiday periods throughout the year, you should maximize said sales b...

Litigation in China for Foreign Investors
The Peoples CourtsChinese courts rely on a legal system more akin to continentalr Europe than the common law system of the UK...

Litigation Can Put You Out Of Business In A Heartbeat
Many companies underestimate the potential gravity of getting into litigious situations. r Lawsuits, especially in cases wher...

Sourcing Wholesale Chinese Electronics
China has become the world leader in providing high quality consumer electronics. Big name electronics companies have set up ...

ICT Opportunities in the Philippines - Also for Fil-Ams
The Philippines today has reached global recognition in the back office service provisioning such as Business Process Outsour...

Direct Email Marketing List-Building Tips for Targeted Opt-In Solutions
One of the greatest challenges in direct emailmarketing is building your list. Your most valuableasset is a list of people wh...

Why do Companies Outsource?
Have you ever wondered why companies outsource? You think you know the answer? Well it is not only about labor costs. It is a...

From the Top of Email Mountain
Ever feel like you are getting Thousands of ads you dont care aboutand will never read?You probably are. Between safelists an...

Retirement Planning
Insurance offers a very attractive option of buying an insurance called Annuity that pay us a regular sum of money monthly/ye...

Offshore Employee Leasing Option: A Boon For Beleaguered Employers
Most of the employers cutting across geographical boundaries go through the common - even though too an unwanted - process of...

The Inner Workings of Annuities
Annuities represent a conservative, but effective, way to provide steady income. So, just how does this process work?The prin...

Sourcing In China - Change Management Must Be Part Of The Initiative
More and more Western company leaders decide to start sourcing goods from China and take advantage of its low production cost...

How to Design a Good Incentive Plan
Incentive Plans Should Be UniversalGet your entire staff to pull in the same direction by designing your incentive plan to in...

Dragon Tattoos
Dragons have a fascination for modern day men and women; they are both reminders of a dark and frightening past, and a testam...

Moving to International Shores
The world is slowly coming closer and closer together. The rapid developments in telecommunications have given quite an impet...

Choosing The Right International Health Insurance
If you are planning to visit Australia on a long-term, one of the most important things to take into consideration is having ...

The Advantages of Direct Manufacturing Outsourcing in China
In todays global economy, attaining a competitive edge is vital. With many companies competing in crowded marketplaces, havin...