As far as we know, the corporation tax rate in United State of America is high. It is one of the highest corporation rates in the developed world which reach to 35%. In order to reduce the tax burden and make them more profitable, more and more American corporations choose to stash their cash overseas, since the developing countries such as China use tax incentives to attract foreign firms to support economic growth. Launching business in the developing countries become the strategy help foreign firms to increase their after-tax returns. For example, General Electric keeps only 30.7 billion of its 85.5 billion in cash reserves in the U.S., while intends to invests more than 1.5 billion in joint ventures with Chinese
…show more content…
Contractual joint ventures are also parterships with a local company. There is no minimum foreign participation requirment for contractual joint ventures. The amount of risk and profit shared by each party is not determined by capital investment but rather agreed upon at the beginning of the partnership. Wholly foreign owned enterprises is a limited liability company estabilished by foreign investors using their own capital, technology and management entirely. They are responsible for all the risks, gains and losses. When face the choice of investment form, foreign firms consider both tax and nontax factors which include the governing laws and regulations, legal liability, duration, approval and registration, capital requirements, profit/loss distribution, management and ownership control, and termination of business of the three forms of FDI in China. But in this case, we will analyze the realationship between tax incentives and selction of a particular form of FIE to see how the changes in the tax rules influence the particular form of FDI selected: Representative office, equity joint ventures, contractual joint ventures and wholly foreign-owned enterprises. The tax incentives include tax related incentive and special tax incentive zones.
Tax related incentives
After China's economy opened to the world at the end of the 1970s, Representive office is a good choice for an initial Chinese presence