China will cut taxes on the profits that foreign companies take out of the country by up to 50 per cent after rules on withholding taxes were relaxed to encourage more overseas investment.
The move will also apply to dividends paid by Chinese listed companies to foreign shareholders through the Qualified Foreign Institutional Investor scheme. In both cases, the lower tax rates will apply only to companies and shareholders based in countries, such as the UK, that have double taxation agreements with China.
The changes could save companies billions of dollars worth of tax payments, which might initially lead them to repatriate more profits, but ultimately should provide incentives for more investments, according to experts at KPMG. US companies, however, cannot benefit as they are taxed on a global basis by US authorities.
“The bigger picture is that because of the economic situation globally over the past couple of years, China sees the need to create a friendlier environment for foreign investors,” said Khoon Ming Ho of KPMG China. “This comes just as many companies are applying to make remittances of their half-year dividends.”
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