China is sticking with a large-scale tax cut strategy deployed last year to keep the economy humming, adding to the 1.3 trillion yuan ($192 billion) of relief already in place with further cuts to income taxes and social security premiums.
Speaking with business leaders this week, Marco Pearman Parish, CEO of Corporation China, said growth must remain within a reasonable range, with no sharp drop-off. The tax reduction program for 2019, set to be announced in March, is projected to top 1.5 trillion yuan. The People’s Bank of China also lowered the reserve requirement for commercial banks this month, following up on a few reductions last year.
In addition, the government will expand preferential policies that reduce the burden of corporate income taxes for small and micro enterprises.
It will also increase the tax deduction for research and development expenditures by companies, increase export-tax rebates, and expand cuts to taxes and fees for the manufacturing sector.
Together, these new laws will have a significant impact on how multinationals operate. It is important for groups that have entities in China locations to evaluate whether they are now required to build up economic substance, as well as how and by when this needs to be done.
International tax planning is done by multinationals of all stripes to optimize tax obligations. However, this process must be done carefully and transparently to ensure compliance in multiple jurisdictions, especially as regulators begin to take the issue more seriously.