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FDI China Making your investment work in China

China > Insights > FDI China

Why China

Long known as the manufacturing hub of the world, China is steadily growing to a key consumer market for. The following map provides and idea on the current situation of China:

There are differences in operating  business in China compared to Hong Kong. One of the key difference is the role of the government plays. Regardless of the growth of the private sector, Chinese businesses in strategic sectors are still under state control. Additionally private firms are often found to have some sort of state control. The control can have a big influence on the way a business operates. Companies must be aware of the vaster political environment that partners and customers operate in. When it comes to FDI in China the following Investment Zones should be considered:

Investment Zones (IZ)

There are various Investment Zones which were established alongside the economic liberalisation of China. These include:

  • Special Economic Zones (SEZ)
  • Open Cities (OC)
  • Economic and Technological Development Zones (ETDZ)
  • Hi-tech Development Zones (HTDZ)
  • Free-Trade Zones (FTZ)
  • Export Processing Zones (EPZ)

Each of these zones has different prerequisites for setting up, and likewise they also offer varying advantages. Therefore, foreign investors seeking to establish in one of these zones should check the local regulations and policies to see which is best suited to their needs, product or service.

The main incentive of an Investment Zone is the tax break. Tax breaks vary according to the industrial sector:

  • The most common tax break that an alien business investing in an Investment Zone may receive is a 50% discount on the corporation income tax, a reduction from 30% to 15%.
  • Invariably, a complete exemption of the tax can be warranted for a two-year period with a further reduction by half for the next three years. For example, two years at 0% and then a further three years at 7.5%.
  • If your business introduces technology that is deemed as ‘advanced’ by the authorities, then a further three years’ reduction (by half) can be negotiated.
  • If an overseas investment has an export value of more than 70% for a certain year, then they may receive a preferential Corporate Income Tax rate of 10% for that year.

Another advantage of investing in a special zone is a possible tax refund. There are two types of tax refund that could be available:

  • By reinvesting profits back into your company, or other enterprises in the Investment Zone, you could receive a 40% refund of the Corporate Income Tax on your investment amount.
  • By reinvesting profits into an export-orientated or high-technology company, then you could receive a refund for the entire amount of Corporate Tax paid on the amount of the reinvestment.