China Plans Shanghai Free Trade Zone To Feature 15% Income Tax Rate

; posted on
August 8th, 2019

The Chinese State Council set out a new reform plan for the Shanghai Pilot Free Trade Zone (FTZ), which may also indicate the direction of future nationwide reform efforts. Prior to this, the Shanghai FTZ reform efforts were set out in a general plan in 2017 including puts forward some innovative measures, inter alia, in relation to: (i) cross-border services and trade management; (ii) free trade port areas; (iii) financial services supporting the “Belt and Road” initiative; and (iv) offshore tax structuring.

The reform in 2017

In 2017, China encompassed a reform in the Free Trade Zone (FTZ) which includes:

  1. Cross-border services and trade management. Facilitate cross-border provision of high-end services, such as finance and insurance, travel, education and health and facilitate temporary importation of goods in respect of which local services (e.g. repairs, testing) are provided.
  2. Free trade port areas. Eliminate/simplify physical controls on goods imported into free trade port areas, streamline declaration procedures, and rely more upon information technology based surveillance.Develop new systems to manage finance, foreign exchange, investment and exit-entry of goods in the free trade port areas in line with international best practice.
  3. Financial services supporting the “Belt and Road” initiative. Shanghai FTZ will encourage Shanghai-based insurers to offer financial products such as construction insurance, life insurance and cargo insurance to provide risk protection for key projects alongside the Belt and Road.
  4. Offshore tax structuring. Explore the possibility of facilitating the use of internationally competitive offshore tax structuring arrangements, to serve the innovative development of trade in services, without resulting in base erosion and profit shifting.

Latest reform

To widen the area of Shanghai Free Trade Zone, the state council has issued an overall plan for the new Lingang area of the China (Shanghai) Pilot Free Trade Zone. Other than the aforementioned points, this new area will also complete with the most competitive free trade zones worldwide and implement opening-up policies and systems with strong global market competitiveness.

The new area will facilitate overseas investment and capital flows and realize the free flow of goods. Further to attract more investor, income tax plan to be levied at a reduced rate of 15 percent within five years from establishment for qualified enterprises engaged in manufacturing and R&D in key fields including integrated circuits, artificial intelligence, biomedicine and civil aviation.

China will study and implement subsidy policies for the balance of personal income tax on overseas talents, and explore tax policy arrangements for pilot free trade accounts under the prerequisite that does not lead to tax base erosion and profit shifting.

Source: China Daily

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