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OECD Investment Policy Reviews China Progress and Reform Challenges: The Tax treatment of FDI in China


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Tax legislation regarding foreign‐invested enterprises (FIEs) consists of a complex system of tax incentives to attract foreign direct investment (FDI). It is not easy to obtain complete information on the tax liability of an FIE, partly because of regional differences in incentives. FIEs contribute about 10 per cent of all tax revenue. Separate laws govern income taxation of domestic enterprises (which are subject to a 33 per cent corporate income tax rate) and FIEs (which are subject to a 15 or 24 per cent rate, depending on factors including location). There are plans to merge the two tax rĂ©gimes. The effect of such a merger would depend on the level of the single rate of tax that would then apply to both domestic enterprises and FIEs. Domestic enterprises would no longer be able to benefit from "round‐tripping", i.e. the practice of investing in China via shell companies in Hong Kong or other foreign locations...
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Document Type: Review Article

Publication date: July 1, 2003

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