China’s Special Economic Zones Attract Foreign Investors

How China’s Special Economic Zones contributed 30 million jobs, 22% of its GDP and enticed 45%of its foreign investment

China has long been an appealing locality for corporations to relocate to. In addition to a lower corporate tax rate of 25%, China offers a healthy incentive package for foreign investors along with low labor costs and a buyer’s market of over 1.3 billion.

Among these incentives are China’s Special Economic Zones (SEZs)

• SEZs function as areas of rapid economic growth by using tax incentives to attract foreign investors.
• Trade in SEZs occurs on land designated as outside the Customs territory of China avoiding many regulations of the Chinese government and generally enjoys more relaxed policies.

China’s SEZs originated in 1980 in four small towns on the southeastern coast of China. These now large cities are Shenzhen, Zhuhai, and Shantou in Guangdong province and Xiamen in Fujian province.

Today, there are also SEZs in Hainan Province, Hunchun and Shanghai. In addition to the benefits for investors, SEZs have had profound benefits to China.

They have contributed 22% of China’s GDP in the last few years and created 30 million jobs. Moreover, SEZs account for 45% of the total national foreign direct investment.

One of the primary benefits of SEZs to investors is tax breaks.

• Initially, there is no tax before the investment turns a profit. Once there are profits, the “tax clock” begins.
• After the tax clock begins, corporations enjoy a tax holiday where no taxes are accessed for the first two years.
• During the third and fourth year, the corporation pays 50% of the normal tax rate.
• Only during the 5th year does the business begin paying the full tax rate.
• In lieu of the 2+2-year tax holiday, for certain corporations with projects in infrastructure, environment protection, and energy there is a 3+3-year tax holiday.

Moreover, corporations investing in integrated circuit production enjoy a 5+5-year tax holiday under certain conditions. These incentives save investors a substantial amount of money.

In summary, for those looking to invest abroad, China offers appealing rewards for those with the capital to stimulate economic growth by investing in key localities.

Edward Lehman, Managing Director of Lehman, Lee & Xu China Law Firm remarks,

“China is the greatest economic transformation in the history of the world. Companies once came to China for low cost labor to aid in manufacturing. Now they come to China to sell to the Chinese.”

Lehman, Lee & Xu is one of the oldest private Chinese law firms, and specializes in providing company establishment, corporate transactions support, intellectual property protection and enforcement, accounting and taxation services, and visa and immigration services for foreign companies doing business in China.

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ReferencesChina’s Special Economic ZonesBy: Hofstra University Accessed September 26, 2016https://people.hofstra.edu/geotrans/eng/ch5en/conc5en/China_SEZ.html

China Corporate Tax RateBy: Trading Economics Accessed September 26, 2016http://www.tradingeconomics.com/china/corporate-tax-rate

Understanding Development Zones in ChinaBy: China Briefing October 5, 2011http://www.china-briefing.com/news/2011/10/05/understanding-development-zones-in-china.html

Special Economic Zones in ChinaBy: China Unique Accessed September 27, 2016http://chinaunique.com/business/sez.htm

China, People’s Republic of Corporate – Tax credits and incentivesBy: PWC Accessed September 27, 2016PwC Tax Summaries — China

Incentives in China for Foreign InvestorsBy: Prajakta Gaidhani Kelkar April 13, 2016