Shanghai plans free-trade zone tax incentive to encourage private equity

PUBLISHED : Tuesday, 08 July, 2014, 1:54am
UPDATED : Tuesday, 08 July, 2014, 1:54am

Shanghai's free-trade zone plans to roll out a tax incentive to encourage outbound investment by private equity funds.

Dai Haibo, an executive deputy director of the zone's administrative committee, said yesterday that the rule would be drawn up at the end of this year as part of the efforts to reinforce the mainland's go-global strategy.

"China's go-outbound move can't be achieved unless our rules are in line with international practices," he said. "The taxation policy is now being made and the national authorities are attaching great importance to it."

It would be the first preferential tax policy introduced in the zone, designed to be a Hong Kong-style free port and the first of its kind on the mainland, since its launch in late September.

Dai said funds registered in the zone would be treated as "offshore funds" and would receive special tax treatment.

"The tax system appears to be complicated and we will work out a series of solutions to help the funds when they make overseas investments," he added.

Private equity funds raised on the mainland that target foreign markets are subject to corporate income taxes at home and abroad.

It is believed the corporate income tax imposed by mainland authorities will be either scrapped or cut substantially.

"A reduction of the tax would help ease the tax burdens on the funds," said Howhow Zhang, head of research at fund consultancy Z-Ben Advisors. "But Shanghai has to convince the national tax authorities of the necessity to do so."

Beijing turned down the city's request to cut corporate tax in the zone from 25 per cent to 15 per cent before the zone's launch.

"Chinese institutions want to fully participate in foreign competition," Dai said. "The attempt [to reform the tax system] is definitely conducive to the go-global campaign."