The world’s second-largest economy has no need to fear that companies will flee China for the US because of the newly signed tax cuts in the world’s largest economy, reckons French investment bank Natixis.
“Although China’s officially standard corporate tax rate is 25%, this is really a maximum and there are a number of ways to get a lower one,” said Alicia Garcia Herrero, Asia Pacific Chief Economist, in a report. “Even including value added taxes, China’s effective tax rate is only 17%, which is much lower than the US new corporate tax ratio.”
Most Chinese local governments still give implicit subsidies to large investors to compensate for their losses in tax, she adds.
The current fiscal situation does not offer China much room to substantially lower its effective corporate tax rate across the board. However, Natixis suggests that China can afford to lower the corporate income tax rate for foreign companies because they constitute a very small part of the tax base.