Problems relating to Trade and Investment on China
6. Reduction and elimination of preferential policies for foreign capital |
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Issue |
Issue details |
Requests |
Reference |
| (1) Repeal of FFEs Preferential Tax Incentive Measures | - On 1 December 2010, GOC began the levy of "urban maintenance and construction tax", and "educational surcharges" on foreign funded investing enterprises, foreign funded enterprises and aliens. With this repeal of preferential taxation measures (PTMs), more favourable than the domestic enterprises made available to FFEs as part of the means to acquire foreign currency and to attract foreign enterprises, GOC has totally repealed PTMs to foreign funded enterprises, putting an end to provision of PTMs (after repealing PTMs on land use tax in 2006, on enterprise income tax in 2008, and on real estate tax in 2009). - While the annual spiraling wages heavily burden operation cost, GOC has removed in part tax incentive measures as regards FFEs, reducing the incentives granted to FFEs. |
- It is requested that GOC refrains from affording unjustifiable preferential treatment on domestic enterprises (on Government Procurement, provision of subsidies, etc.), while repealing preferential measures on FFEs. - It is requested that GOC resurrects the incentive measures on FFEs. |
- Notice on Extending the Urban Maintenance and Construction Tax and Educational Surcharges from Chinese to FFEs and Citizens Guofa[2010]No.35 - Notice of SAT on Further Clarifying the Standards for the Implementation of Preferential Policies Regarding Enterprise Income Tax during the Transition Period, Article 1 (Letter [2010] No. 157 of SAT of 21 April 2010 - Enterprises Income Tax Law |
| (Action) - According to the USTR announcement of 29 November 2007, agreement was reached between the U.S. and PRC on elimination by 1 January 2008 of all 12 subsidies granted to Chinese exporting industries, including exemption or lowering of corporate/value added tax and low interest loans granted by GOC. The United States and Mexico had earlier requested the establishment of a dispute settlement panel in July 2007. - Since 1 December 2007, Catalogue of Industries for Guiding Foreign Investment (CIGF) has been enforced. It encourages high technology industry, energy saving industry, environmental protection industry and high added value industries. - On 6 December 2007, Enterprise Income Tax Law (President Order No.63) (EITL) was promulgated and enforced from 1 January 2008, together with Regulation on the Implementation of the Income Tax Law of PRC (State Council Order No. 512). While the enterprise income tax rate is 33% in principle, FFEs in manufacturing business and certain foreign funded trading firms have enjoyed the preferential rate of 16% in average. It is said that enterprise income tax rates were reduced to: 15% in the 50-odd Economic Development Zones designated by the central government and to 24% in the 200-300 Economic Development Zones designated by the local governments, or 25% in total average. The new EITL unifies such varied tax rates between the domestic and FFEs into the single rate, and eliminates inequality under the tax law between the two. "The industrial preferential treatment supersedes the regional preferential treatment" being the basis of tax reform, the preferential treatment on FFEs will be repealed in stages. The 25% tax rate applies uniformly and various preferential policies will be phased out one after another. The C tax rate applies from 2008 to new FFEs entering PRC. The enterprise income tax rates for the existing FFEs will be raised in stages to 25% in five years. - Since 1 January 2008, new Labour Contract Law (LCL) has been enforced, whereby cost increase is expected in labour cost. - Since 1 January 2008, Enterprise Income Tax Law has been enforced, whereby the preferential tax treatment such as "enterprise income tax, which is free for 2 years and half the tax amount for 3 years" and the lower tax rates have been repealed as to FFEs. However, the 5-year transitional period of gradual increase applies to the existing enterprises in the 5-Large Economic Zones and the New Pudong Zone. By this measure, the Tax incentive is lost to FFEs, especially to those engaged in a simple manufacture for export. - On 20 August 2009, Ministry of Finance (MOF) and 5 other Government Institutions promulgated "Notice on Adjustment of Tax Revenue Policy on Import of Equipment with Major Technological Importance", based on which tariff and value added tax (VAT) are exempted on import of parts and raw materials for enterprises satisfying the requisite conditions, (previously, refunded.) The Notice has repealed the exemption measures for tariff and VAT exemption on complete set of equipment. The Notice is enforced retroactive to 1 July 2009 and is valid until the end of 2009. - On 30 December 2009, State Yuan Standing Committee released 5-major policies to promote more effective use of foreign capitals, including: (1) Encouragement of foreign investment into high-end manufacturing sector, high technology industry, modernistic service industry, new energy, energy saving environmental protection industry, etc., by revising "Catalogue of Industries for Guiding Foreign Investment", (2) Support to foreign capital's shift to and increased investment in the mid-western region, and (3) Encouragement to business reorganisation of the domestic industry by M&A, promoting the diversified utilisation of foreign capitals. - On 16 January 2010, Guangzhou Municipal Government promulgated "The Opinions on the Implementation to Accelerate the Development of a Headquarters Economy" (enforced on the same date). The Opinions provide a set of preferential measures on land utility, financing, technological innovation, human resources service, etc. to attract the location of Enterprises' Headquarters (EHQs) in Guangzhou City. They also provide for various subsidies and bounty for use of office space in Guangzhou City to compensate for establishment of EHQs and tax payments. Enforcement of the Opinions has repealed Notice on Regulations to encourage establishment of EHQs and local EHQs (promulgated on 16 October 2006). The Opinions are valid for 5-years. - On 14 May 2010, Ministry of Commerce (MOC) promulgated "Foreign Investment Promotion Plan in the Central Region (2009-2014)" (FIPPCR) and "Foreign Investment Promotion Plan" for the 6-Central Provinces (Jiangxi, Anhui, Henan, Hebei, Hunan, and Shanxi)(Provincial Plan). Provincial Plan sets forth the basic guideline and investment preferential measures concerning the major industries, investment mode, the subject areas, and originating country/area of investment. The 6-Central Provinces will: (1) improve the environment for infrastructure, transportation, administration, market, legislation system, culture, etc, (2) expedite structuring of a stable and transparent system for foreign investment management, (3) improve preferential measures related to administrative fees on land utility, taxation system, electric power and water, and financing, (4) expand its support to the Central Trade Development Fund focused on the investment promotion measures in the Central Region, and strengthen human resources development, and (5) streamline the examination and consultation mechanism and sound system for evaluating the investment environment/and for checking the accountability. The details are stipulated on the "Provincial Plan" for preferential measures, special treatment on foreign investment, etc. The 6-Central Provinces will give priority to multi-national enterprises in Western Europe, North America and Asian Pacific Regions in attracting foreign investments. The 6-Central Provinces also focus on attracting investment from small-to-medium-enterprises (SMEs) in Taiwan, Hong Kong, Macao, Japan, and Republic of Korea having a solid foundation equipped with their specialised expertise. - On 1 December 2010, the State Council promulgated "Notice of the State Council on Extending the Urban Maintenance and Construction Tax and Educational Surcharges (UMCT/ES) from Chinese to Foreign-funded Enterprises and Citizens "(Guowuyuan No.35 [2010])", which expanded the scope of tax payers to include FFEs and foreign individuals that had been exempted from such tax liability till then. - On 28 January 2011, State Council promulgated "Notice of the State Council on Issuing Several Policies on Further Encouraging the Development of the Software and Integrated Circuit Industries". This Notice sets forth the new preferential measures to optimise the environment for industrial development, in order to beef up the Chinese scientific and technological creative power and to further the industrial development in the software and integrated circuit industries. The concerned offices of the central and regional governments will set about laying down the concrete implementing measures. - On 28 February 2014, GOC promulgated "Notice of MOF, NDRC, MIIT, et al on Adjusting the Import Tax Policies for Key Technological Equipment (CaiGuanShui Notice [2014] No.2)". (http://gss.mof.gov.cn/zhengwuxinxi/zhengcefabu/201402/t20140227_1048002.html) - On 24 September 2014, at the executive meeting of the state council called and presided by Premier Li Ke Qiang, decision was reached to overhaul accelerated depreciation policy in order to promote import of high-tech products. |
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