Even though Washington’s tax overhaul means lower corporate taxes and higher chances that U.S. companies will return home, China has just recently announced a series of tax breaks to convince these same companies to stay.
Beijing announced the decision on Thursday evening. This marked the first serious reaction by a foreign nation to the United States’s recent tax reform. The move is a continuation of the communist leaders’ many promises to spur economic growth by luring in more foreign investments.
China will also exempt non-domestic companies from withholding profit taxes if they pour money in some of the country’s key industries. The news was confirmed by China’s tax agency and its Finance Minister.
According to officials familiar with the plan, the move will apply retroactively to January 1, 2017, which means U.S. firms will get a refund on 2017 taxes.
- Beijing announced that the measure is a reaction to other countries’ decisions to retain foreign investment by offering tax breaks.
- The government wants foreign investment to go to specific industries, and companies could significantly benefit if they reinvest profits in China.
For instance, China wants foreign money to fuel its nascent wind power and solar industries. This could also help grow its so-called green farming.
Washington’s Tax Overhaul Could Prompt U.S. Companies to Return
On the other hand, in Washington, the backers of the revamped tax plan are confident that U.S. companies stationed in China will return home and invest in the economy of the United States. Canada and other governments have voiced concerns that the move could deprive their economies of badly needed foreign money.
It wasn’t immediately clear if China’s decision could offset the many drawbacks of doing business in a state-controlled economy.
Many U.S. companies have complained over being shut out of some key industries or being forced to give Chinese competitors access to their technological know-how.
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