China Offers Tax Incentives to Persuade U.S. Companies to Stay

China Offers Tax Incentives to Persuade U.S. Companies to Stay

FROM: NYT

“China said on Thursday that it would temporarily exempt foreign companies from paying tax on their earnings, a bid to keep American businesses from taking their profits out of China following Washington’s overhaul of the United States tax code,” Sui-Lee Wee reports for The New York Times. “There is, however, a catch: To be eligible, foreign companies must invest those earnings in sectors encouraged by China’s government — including railways, mining, technology and agriculture — according to a statement from the Finance Ministry. The measure is retroactive from Jan. 1 this year, the ministry said.”

“The move would ‘promote the growth of foreign investment, improve the quality of foreign investment and encourage overseas investors to continuously expand their investment in China,’ the ministry said,” Wee reports. “The newly approved tax incentives in the United States could appeal to companies that are frustrated by China’s rising labor costs, ambitious local competitors and tangled legal systems, or those that would rather spend their money at home or elsewhere.”

“The American tax overhaul has been promoted by President Trump and other Republican leaders as a move to make the United States more competitive globally,” Wee reports. “China sets tight rules on how much money flows out of the country, as a way of controlling the value of its currency and keeping its financial system stable. A significant repatriation of foreign earnings could set off a broader capital flight, and weaken the country’s currency, the renminbi. And a sharp fall in the renminbi could spark a vicious cycle with even more companies — and possibly individuals — looking to minimize losses by moving their money out of China.”