In order to create a favourable investment environment and to encourage overseas companies to invest in China, China has gradually set up a relatively complete legal system. In the last 20 years, the Chinese government has promulgated and issued a series of laws and statutes concerning the establishment, operation, termination and liquidation of foreign-invested enterprises. These provide legal bases from which to guarantee the independent operation rights of foreign-funded enterprises and to protect the legitimate rights and interest of both domestic and overseas investors.
The Chinese government levies low tax on companies with foreign investment, and preferential tax policies are offered to the sectors and regions where investment is encouraged by the state. Income tax ranges from nil to 24 percent, whilst the normal tax rate is 33 percent. Technology transfer and technological development by foreign companies and companies with foreign investment are exempted from value-added tax. For foreign-invested companies engaged in projects in the encouraged or restricted-B categories*, the value-added tax on China-made equipment purchased by the companies within their total amount of investment shall be fully refunded if the equipment is listed under the catalogue offered with income tariff exemption. Furthermore, since 1992 the Chinese government has reduced nine times the tariff rate for imported commodities. The present average tariff rate is 12 percent.
(*The items in the catalogue encouraged for foreign investment mainly include: new agriculture technologies, comprehensive development of agriculture, energy resources, communications, important raw materials, new and high technologies, export-oriented and foreign-currency-earning projects, comprehensive utilization and regeneration of resources, prevention of environmental pollution, and those that give play to the advantages of China's mid-west areas. Meanwhile, foreign investment is directed to the technological upgrading of traditional industries and old industrial bases and to the continued development of labor-intensive projects that comply with the state's industrial policies.
Foreign investment is prohibited in projects that endanger the state security and bring damages to public interest; that cause pollution of the environment and damage natural resources and public health; that use large farmland and are unfavorable to the protection and development of land resources; and that endanger the security and normal function of military facilities.)
There are a wide range of areas that foreign individual or company can invest. These include infrastructure, agriculture, metallurgy and mining industry, service and agency, petroleum and chemical industry, apparel and textile, education and training, electronics and information industry, mechanical and engineering industry, restaurant, transportation, Finance and insurance, real estate, tourism and recreation etc. For investment in high technology industries, software and integrated circuit industries and investment to central and western China there are further specific favourable policies.
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