Tax deferrals support foreign business

Chinese tax authorities will further implement preferential tax policies, including deferring tax on foreign-funded enterprises' reinvestment of profits, to support the country's opening-up strategy and enhance the confidence of foreign investment in China, according to officials from the State Taxation Administration.

New tax measures that debuted this year to ease enterprises' tax and fee burdens will also be adopted by foreign-funded companies, as China will continually support foreign investment aligned with the opening-up policy, Wang Daoshu, deputy head of the STA, told media on Friday.

Data from the STA showed that in the first three quarters of this year, the total tax and fee reductions reached 910 billion yuan ($142 billion), of which almost 789 billion yuan was from tax cuts.

For foreign companies, the profits they obtained in China, which could be directly used for reinvestment in domestic projects, will not be subject to withholding tax for the time being, according to Meng Yuying, director of the international taxation department of the STA.

This policy could effectively ease the tight financial conditions of some foreign enterprises and promote the sustainable growth of their reinvestment in China, Meng told media at a conference.

Some surveys indicated that more than one-third of foreign companies' reinvestment was flowing into the manufacturing industry, including automobiles, computers, communications and other electronic equipment.

In the first three quarters of the year, nearly 90 percent of foreign enterprises that applied for deferred tax believed that the policy can play a key role in increasing capital and expanding businesses. It will help business leaders make the decision to increase investment, according to the STA official.

Meanwhile, foreign companies in China can also enjoy an additional deduction for research and development expenses, a tax measure to encourage corporate innovation. Under this policy, foreign companies have enjoyed total tax reductions of 66.2 billion yuan from January to September, the tax administration disclosed.

Foreign companies benefiting from the policy invested an average of 16.7 million yuan in research and development during the same period－a level higher than other enterprises, which showed that foreign companies' technological innovation has improved, it said.

New tax-paying market entities registered in China reached 9.7 million in the first three quarters of this year, with 41,600 of them foreign funded, up by 26.1 percent from a year earlier, a growth rate that has rebounded to the pre-pandemic level, according to the administration.

Meanwhile, the registered capital of key foreign-funded enterprises in China increased by 3.5 percent year-on-year, of which the registered capital of foreign-funded enterprises in the high-tech manufacturing industry increased by 5.3 percent on a yearly basis, the official data showed.

"It indicated that foreign investment has stronger confidence in China's economic development and the Chinese market is becoming more attractive for foreign investment," said Meng.

A State Council executive meeting on Oct 27 decided to defer tax payment for small and medium-sized enterprises, especially in the manufacturing sector, aiming to ease the impact of a rise in material prices, according to a statement from the meeting.

It would defer around 200 billion yuan of tax payments for small and medium-sized enterprises in the manufacturing industry, the statement said.