USASBE 2008 Proceedings - Page 0567
The tax law contains tax incentives that will encourage investment in energy and resource saving, environmental protection, and the development of high technology rather than in geographical locations. These tax incentives include:
A reduction of its taxable profit by an amount equal to a percentage of the investment
Bonus deductions for qualified R&D expenses.
A reduction of tax by an amount proportional to the level of investment in equipment used for environmental protection, energy or water savings, or industrial safety.
Income derived from environmental protection projects and technology transfers may be eligible for tax exemption or reduction.
Tax exemptions or reductions will be granted to qualifying investments in energy and water saving projects, infrastructure facilities, as well as, agriculture, forestry, animal husbandry, and fishery industries.
The US tax law has historically provided similar incentives to US ventures for investment in operating assets in similar industries.
The standard withholding tax rate for dividends, interest, royalties, capital gains, or other income derived by a non-resident enterprise is 20 percent. The PRC is currently considering relief provisions for FIEs :
Non-taxable or exempt income includes “financial appropriations, certain administrative charges, and government funds”. Also included as exempt from income tax are:
interest income from treasury bonds and
inter company dividends derived by:
a resident enterprise from another resident enterprise
non-resident enterprise effectively connected with an establishment or place of business set up by the non-resident in China.
Deductions are unified for all enterprises in China. Wages actually paid in excess of prior limits are now deductible. Charitable contributions are limited to 12 percent of net income. Tax loss carry forward is limited to five years. Overseas branch losses cannot be offset against profits earned in China.
3. Anti-avoidance measures include new disclosure requirements concerning related- party transactions (to curb transfer pricing abuses) and thin capitalization rules (to curb interest deduction abuses).