BEIJING — China said on Thursday that it would temporarily exempt foreign companies from paying tax on their earnings, a bid to keep American businesses from taking their profits out of China following Washington’s overhaul of the United States tax code. There is, however, a catch: To be eligible, foreign companies must invest those earnings in sectors encouraged by China’s government — including railways, mining, technology and agriculture — according to a statement from the Finance Ministry. The measure is retroactive from Jan. 1 this year, the ministry said. The move would “promote the growth of foreign investment, improve the quality of foreign investment and encourage overseas investors to continuously expand their investment in China,” the ministry said. It did not elaborate. Despite its appeal as a manufacturing hub, one where companies from around the world have set up operations to tap into a highly skilled work force and strong infrastructure, China charges high taxes. On top of a standard corporate rate of 25 percent, companies are required to make social security contributions and other payments that push their tax burden higher than it is in many other countries. ADVERTISEMENT The newly approved tax incentives in the United States could appeal to companies that are frustrated by China’s rising labor costs, ambitious local competitors and tangled legal systems, or those that would rather spend their money at home or elsewhere. And officials in Beijing have worried that the overhaul could prove to be a challenge to Chinese laws that aim to keep money from leaving the country’s borders. While Thursday’s announcement did not explicitly refer to the tax overhaul in the United States, analysts have said that it is almost certain that the policy was in response to it. This month, China’s vice finance minister, Zhu Guangyao, pledged to “take proactive measures” in response to the overhaul, according to Xinhua, China’s state-run news agency. He noted that the impact of the changes overseas “cannot be overlooked.” You have 4 free articles remaining. Subscribe to The Times The American tax overhaul has been promoted by President Trump and other Republican leaders as a move to make the United States more competitive globally. In particular, the new corporate tax rate is sharply lower, moving the country from having among the highest corporate tax rates to among the lowest. Under the plan, the rate will go to 21 percent from 35 percent. What’s in the Final Republican Tax Bill The legislation would cut taxes for corporations. American taxpayers, in large part, would also get cuts, though most of the changes affecting them would expire after 2025. Dec. 15, 2017 But ministers, officials and analysts in much of the rest of the world have said it could create an uneven playing field and set off a race among countries to cut corporate taxes. Because the United States already offers a large and wealthy domestic market, relatively light workplace regulation and large amounts of venture capital, lower tax rates had been one lever that other countries had used in an effort to lure companies.
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