(Source: https://pltfrm.com.cn)
Here are some of the key tax benefits and special rules for foreign entities in Chinese FTZs:
- Corporate Income Tax (CIT) Incentives: Foreign entities in FTZs may benefit from reduced CIT rates. The standard CIT rate in China is 25%, but entities in certain sectors or engaged in specific activities within FTZs may qualify for lower rates. Additionally, tax holidays or reductions may be available for the initial years of operation.
- Value-Added Tax (VAT) Benefits: FTZs often offer VAT exemptions or rebates for specific activities, particularly for goods that are re-exported. This can include simplified VAT procedures and exemptions for certain transactions that take place within the FTZs.
- Customs Duties: One of the key attractions of FTZs is the preferential treatment regarding customs duties. Goods entering an FTZ are typically exempt from customs duties and import VAT, provided they are used within the zone or re-exported. Duties and taxes may apply if goods are moved from the FTZ into other parts of China.
- Streamlined Administration: FTZs usually offer more streamlined administrative procedures for tax and customs, reducing the bureaucratic burden on businesses. This includes simplified processes for import and export, as well as easier access to currency conversion and capital movement.
- Sector-Specific Incentives: Depending on the specific FTZ, there may be additional incentives for certain sectors, such as finance, technology, logistics, or trading. These incentives are aligned with the strategic objectives of each FTZ.
- Withholding Tax Relief: Reduced rates of withholding tax on dividends, royalties, and interests may be available for foreign investors in FTZs, especially when applicable under double taxation agreements (DTAs).
- Land Use Tax and Real Estate Tax Benefits: Lower rates or exemptions from land use tax and real estate tax are sometimes available in FTZs, especially for specific types of projects or land use.
- Encouragement of Research and Development (R&D): FTZs may offer additional tax deductions or credits for R&D expenditures, encouraging innovation and technological advancement.
- Transfer Pricing Compliance: While enjoying these benefits, entities in FTZs must still comply with China’s stringent transfer pricing rules, ensuring that transactions with related parties are conducted at arm’s length.
- Regulatory Compliance: Entities in FTZs must comply with all relevant regulations, including those specific to the FTZ and general Chinese law. Non-compliance can negate tax benefits and result in penalties.
Foreign entities considering establishing a presence in a Chinese FTZ should seek professional advice. The specific benefits and requirements can vary between different FTZs and over time, as China frequently adjusts its policies to respond to economic conditions and strategic objectives.
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