China Incentivizes Russian Investors By Cutting Profits Tax To 15% In Inner Mongolia and Manzhouli
Op/Ed by Chris Devonshire-Ellis
China’s State Council has decided to extend preferential corporate income tax policies to further enhance the massive development of the western regions. Following an executive meeting on April 14 this year, China’s Ministry of Finance and the State Taxation Administration has subsequently released the Announcement about Continuing to Implement Preferential Corporate Income Tax Policies for Western Development.
Profits Tax Reduction For Investing In China’s Western Regions
According to the announcement, enterprises will pay a lower corporate income tax rate of 15% if they make investments in encouraged industries in China’s Western regions from January 1, 2021 to December 31, 2030. This includes foreign invested companies. China’s standard profits tax rate is 25%.
China’s Western regions include Chongqing Municipality, Sichuan, Guizhou, Guangxi, Yunnan, Tibet, Gansu, Qinghai, Ningxia, Shaanxi, Inner Mongolia and Xinjiang, while some regions and cities in other provinces, such as Xiangxi, Enshi, Yanbian and Ganzhou, can also adopt the same preferential tax policies. To qualify, investors must fit into categories as provided for in the ‘Catalogue of Industries Encouraged to Develop in the Western Region’. The announcement is effective from January 1, 2021, giving foreign and potential foreign investors in China eight months to conduct market research prior to committing to an investment. Of particular interest to potential Russian investors will be the inclusion of Inner Mongolia as part of this incentive programme, as the Province shares a border with the Russia’s Zabaykalsky Krai, and includes access to the major land crossing between the two countries at the Manzhouli / Krasnokamensk border.
The Western Regions Encouraged Industries List
Encouraged industries are listed in the Catalogue of Industries Encouraged to Develop in the Western Region, and in order to enjoy the preferential tax rate, a company’s main business revenue must account for at least 60% of its total business revenue. This will apply in most cases, but is in place to prevent deliberate exploitation of the preferential reduction by domestic companies.
The Encouraged Industries list varies from region and region, with about 30 differing industries listed for each. In previous, similar lists, these have been typically demanding and highly specialist requirements. What is unusual about this list is that it appears to include fairly standard foreign investment criteria.
The Inner Mongolia list appears to accept as qualifying for the scheme, investment in:
- Cultivation and processing of psammophytes
- Development and production of composite living bacteria preparation and microbial additives for fodder
- Production of organic-inorganic compound fertilizer
- Construction and operation of backpressure cogeneration units
- Construction and operation of solar energy system
- Construction and operation of wind farm
- Development and application of intelligent mini-grid technologies based on distributed energy sources
- Biomass power generation through high-oil micro algae
- Development and production of high-performance rare-earth permanent magnet, luminescent, hydrogen storage and catalytic materials
- Development and application of new materials of germanium and uranium: manufacture of series civil nuclear fuel units for heavy water reactor, pressurized water reactor and gas cooled reactor, development and application of thorium resources, production of high purity germanium and optical fiber communication
- Production of refined chemical products including polyformaldehyde (60,000 tons/year or more), dimethyl formamide (60,000 tons/year or more) and polyving akohol (60,000 tons/year or more)
- Deep processing of single set anhydrous coal tar (150,000 tons/year or more)
- Development and application of technologies for production of polyvinyl chloride (PVC) using mercury-free catalyst
- Production of refined products of fluorine chemical industry including hexafluoroethane (excluding projects restricted or prohibited by the Catalogue for Guiding Industrial Restructuring)
- Development and production of new-type carbon materials including grapheme, nano carbon, fine structure graphite, bio-carbon and negative of lithium battery
- Production of series fire-proof materials with coal series kaolinite substituting high bauxite and other non-metallic fire-proof materials and products
- Production of large-diameter, high-pressure, thick-wall boiler tubes
- Development and manufacture of rare earth permanent magnet NMR image equipment with a magnetic induction intensity of more than 0.3T
- Manufacture of small bower for pasturing households
- Manufacture of complete vehicle and special vehicle (excluding common trailer, dump truck, tank truck, van and stake truck)
- Manufacture of non-road mining dump truck with a load of 300 tons or more
- Processing of fluffy cotton
- Processing and production of handicrafts with ethnic characteristics
- Construction and operation of water supply project for rural residents (including extension of urban water facilities)
- Road passenger transport
- Operation of civil airport (production and operation activities directly related to airport operation)
- Construction and operation of wideband network
- Construction and operation of large or extra-large data center
- Construction and operation of port logistics facilities (warehouse, storage yard, handling tools, multimodal transport/transfer facilities, logistics information platform, etc.)
- Operation of medical institution
- Pilot training
- Development and application of environmental technologies on treatment of sanitary sewage, garbage and livestock excrements in rural areas
To allow further initial research, we have provided a complimentary English language, PDF copy of the Catalogue of Industries Encouraged to Develop in the Western Region for our Russia Briefing readers.
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Connections to Manzhouli from Russia are simple and direct, the city is connected to Russia via the Trans-Manchurian railway, which extends both to Beijing and Moscow as well as to nearby Chita. Manzhouli is a major processing hub for Russian raw materials, especially lumber and is ideally positioned to take advantage of China’s huge domestic consumer market. There are flight connections from Manzhouli to Chita, Harbin and Beijing.
Russian investors looking at establishing production or processing facilities in Manzhouli, Inner Mongolia or elsewhere in China may contact Maria Kotova at email@example.com. Our firm has years of regional experience, and is familiar with the Manzhouli region, having assisted clients there for the past decade.
China-Russian trade hit US$110 billion last year and is expected to grow to US$200 billion by 2024. An additional investment issue to consider in this are the on-going negotiations to the already signed China-EAEU Free Trade Agreement.
Although tariff reductions are yet to be agreed, there is expected to be progress by the year end. As and when that happens, bilateral trade can be expected to boom. Both Governments are doing their best to facilitate this, and the Chinese incentives provided for in Inner Mongolia should be given serious attention by regional and other Russian investors.