China offers tax breaks to foreign firms in bid to boost investment, counter US incentives

China is responding to Washington’s tax overhaul by offering foreign companies a break on Chinese taxes in a bid to retain investment.

The measure announced late on Thursday is Beijing’s first major reaction to the United States’ decision to cut corporate tax rates. It follows a flurry of promises by communist leaders to spur growth in the slowing, state-dominated economy by opening more industries wider to overseas companies.

Foreign firms will be exempt from withholding taxes on profits they reinvest in industries specified by Beijing, the finance ministry and tax agency said. It is also retroactive to January 1, 2017, meaning such companies will receive a refund on taxes paid this year.

Beijing wants to “attract foreign investors after a host of countries unveiled similar measures to lure foreign and domestic investment”, Xinhua reported.

The exemption will apply to companies that reinvest profits in industries cited in government investment catalogues, the announcement said. These include solar and wind power, “green farming” and other fledgling fields in which Beijing is trying to develop technology.

Supporters of Washington’s tax changes enacted this month said they will encourage investment in the United States. Governments, including Canada’s, and private sector analysts have warned that they could draw money away from their economies.