China to Cut Taxes to Encourage More Foreign Overseas Investment
To encourage more foreign overseas investment, china is planning to cut taxes on the profits that foreign companies takes out of the country by 50 percent after the rules on withholding taxes were relaxed. According to China’s tax authority, the move also applies to the dividends being paid by Chinese listed companies to foreign shareholders.
In these two cases the lowered tax rates applies only to the companies and its shareholders that are based in countries that have double taxation agreements with China. These changes can save companies billions of dollars in tax payments. This might also lead these companies to repatriate more profits. But these changes should be able to provide incentives for more investments.
The relaxation of taxation rules came after a year of consultation between the Chinese tax authorities, companies and tax experts. The planned effect is to make it easier, simpler and quicker to cut withholding taxes that were paid on dividends from 10 percent to 5 percent depending on the company’s country of residence.
The withholding tax reductions were introduced in 2009, but companies that wish to avail these reductions had to meet a list of criteria which a majority failed to comply. Now any company that is listed and a resident of a country with a tax treaty with China, now automatically qualifies.