“Two exemptions & three reductions” policy for foreign company registered in Shanghai

Core tips: The “two exemptions & three reductions” policy means that foreign-invested enterprises can enjoy the exemption of two years and halving for three years of corporate income tax from the profit-making year. For foreign-invested enterprises encouraged by the state that are established in the central and western areas, this may be extended for another three years halving after the expiration of the five-year reduction and exemption period.

The “two exemptions & three reductions” policy means that foreign-invested enterprises can enjoy the exemption of two years and halving for three years of corporate income tax from the profit-making year. For foreign-invested enterprises encouraged by the state that are established in the central and western areas, this may be extended for another three years halving after the expiration of the five-year reduction and exemption period. Foreign-invested and advanced technology-based enterprises can enjoy three-year tax exemption and six-year halving of corporate income tax.

For export-oriented enterprises, in addition to enjoying the above two exemptions and three reductions in income tax, as long as the company’s annual exports account for more than 70% of the total amount of corporate sales, it can enjoy the benefit of halving the corporate income tax; for foreign-invested enterprises that purchase domestically produced equipment within the total investment amount, and if such imported equipment falls within the scope of the import tax exemption list, the enterprise income tax may be credited according to regulations.

China mainly encourages foreign investors to invest in the following areas:

  • The first is to encourage foreign investment to transform traditional agriculture, develop modern agriculture, and promote agricultural industrialization.
  • The second is to encourage foreign investors to invest in infrastructure and basic industries such as transportation, energy and raw materials.
  • The third is to encourage foreign investors to invest in high-tech industries such as electronic information, bio-engineering, new materials, and aerospace, and encourage foreign investors to set up R&D centers in China.
  • The fourth is to encourage foreign investors to use advanced and applicable technologies to transform traditional industries such as machinery, light industry, and textiles, and to upgrade the equipment industry.
  • Fifth, encourage foreign investors to invest in comprehensive utilization of resources and renewable resources, environmental protection projects and municipal projects.
  • Sixth, in line with the Western Development Strategy, foreign investors are encouraged to invest in advantageous industries in the western region.
  • Seventh, encourage foreign investors to invest in allowed items where all products are for exporting.

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