In 2015, China achieved net capital outflows under direct investment, becoming the world’s second-largest outward investor. In 2016, China’s outbound investment reached a new high, with cumulative non-financial direct investment abroad totaling US$170.11 billion for the year, representing a year-on-year increase of 44.1%. These investments were spread across 7,961 overseas enterprises located in 164 countries and regions worldwide. Mergers and acquisitions have become the primary form of overseas investment for Chinese enterprises.

　　Driven by the country’s “Belt and Road” initiative, Chinese enterprises have shown vigorous investment activity in countries along the Belt and Road. Throughout 2016, China’s direct investment in countries along the Belt and Road reached US$14.53 billion. A total of 8,158 new contracts for foreign contracting projects were signed, with a total contract value of US$126.03 billion—a year-on-year increase of 36%. The primary destinations for these investments include Singapore, Indonesia, Thailand, Malaysia, Vietnam, and the Philippines. The main sectors receiving investment are metal and energy extraction, manufacturing, infrastructure—including power and construction—and rubber products. Among these, South Asia—particularly India and Pakistan—has experienced the fastest growth, with investments concentrated in areas such as infrastructure development, information and communication technology, software design and development, metal mining, and manufacturing.

　　The model for Chinese enterprises going global is gradually shifting from exporting individual products and enterprises to exporting entire industrial clusters—this shift aims to reduce investment risks and costs, avoid trade frictions, and gain a first-mover advantage in countries where industrial cluster effects have yet to take hold.

　　With the rapid development and widespread adoption of internet technologies, new business models are constantly emerging. Traditional industries are actively embracing technological and managerial innovations to transform and upgrade themselves, and the new economy is injecting fresh growth momentum into China. Against this backdrop, Chinese enterprises—motivated primarily by the desire to acquire advanced technologies, established brands, and well-developed distribution channels—are eager to “go global” and explore “value opportunities” in developed markets.

In 2017, Chinese enterprises continued to show strong demand for overseas investment. However, the ongoing depreciation of the RMB has triggered a sharp increase in capital outflows, and in the short term, controls on capital outflows are set to tighten. We expect that future large-scale transaction volumes will decline significantly, cross-sector mergers and acquisitions will become more cautious, and investments in certain non-strategic sectors—such as real estate, hotels, and entertainment—will also be affected to some extent.

　　Nevertheless, from a long-term perspective, the trend of Chinese enterprises’ overseas investment is irreversible. We expect that in 2017, Chinese enterprises’ overseas investment will exhibit the following trends:

　　Overseas investment driven by the Belt and Road Initiative continues to maintain strong momentum. China’s pace of establishing industrial parks globally in the manufacturing sector continues to accelerate.

　　Compared to financial investments, strategic investments remain encouraged. Mergers and acquisitions closely aligned with the core business and focused primarily on technology and supply chains will continue to grow rapidly.

　　Mergers and acquisitions related to smart manufacturing, the digital economy, and consumption upgrading will be the highlights of overseas M&A activities in 2017.

　　— Western Europe and North America remain the most important target countries for Chinese companies’ overseas M&A activities.

　　—Economic exchanges within the Asian region will become even closer, and China’s direct investment and mergers and acquisitions in Southeast Asia will continue to increase.

　　Since 2016, the frequent occurrence of “black swan” events does not signify the end or reversal of globalization; rather, it marks the beginning of a new phase in globalization. On this new journey, China will shift from its previous relatively passive participation in the global value-chain division of labor to a more proactive and active role in reshaping the value chain. A development philosophy that emphasizes “quality” over “speed” will further guide future economic development and lead the new course of globalization.

　　Next, we’ll introduce the preferential policies and tax systems of major countries around the world.

　　Europe

　　1. France’s Tax Incentives and Tax System

　　The investment incentives offered by the French central government are universal—regardless of where a company is located in France, as long as it meets the requirements set forth in the policy, it can enjoy the preferential treatment.

　　Most importantly, the government has developed the Tax Credit for Research and Development (CIR). In addition to this, the French government has introduced a variety of other tax incentives, including the Family Tax Credit, the Tax Credit for Film and Multimedia Industries, the Tax Credit for the Video Game Industry, tax reductions for high-growth small and medium-sized enterprises, tax benefits aimed at promoting sustainable development and environmental protection, tax exemptions for newly established enterprises, and tax incentives designed to encourage innovative businesses. Moreover, there are also a range of complementary preferential policies. Local governments have further implemented a series of corresponding measures, primarily involving preferential treatment offered by the French government for investment activities in “priority development regions.”

　　France’s tax system is designed to facilitate business investment, regional development, and international expansion. At the same time, by treating different interest groups in a differentiated manner, the French tax system fully embodies fairness. France has signed tax treaties with over 100 countries and provides protection for investors to prevent double taxation.

　　France boasts a highly sophisticated tax system that serves as a quintessential example of the tax systems in Western countries. Prior to the 1959 tax reform, France adopted a territorial tax system; afterward, it transitioned to a comprehensive income tax system. The French government has established a set of guiding principles for the creation, operation, and reform of its tax system. These fundamental principles include: the principle of legality, the principle of public interest, the principle of equality, and the principle that those with greater wealth pay more taxes while those with lesser means pay less. Tax categories can broadly be divided into income tax, consumption tax, capital tax, and local taxes.

　　2. Considerations for Germany’s Tax Structure

　　A common practice for reducing German withholding tax is to channel funds through a holding company. Typically, one can choose an EU country and leverage the EU Parent-Subsidiary Directive to reduce the withholding tax on dividends to zero. However, this approach requires meeting two conditions: First, the holding company must own certain operating entities that satisfy the prerequisites stipulated by German law. Second, the jurisdiction where the holding company is located must not impose taxes on dividend flows. If it’s not feasible to establish an operating entity in another suitable location, direct investment can be made via a partnership structure (such as a limited partnership or a general partnership).

　　This is a commonly adopted corporate structure among medium-sized enterprises (SMEs) in Germany. In Germany, a partnership typically bears a tax burden comparable to that of a limited liability company (GmbH). However, funds remitted back to the home country are not considered dividends and thus are exempt from dividend withholding tax. Generally, remitting funds back to the home country via Hong Kong does not trigger any tax liabilities. That said, when remitting funds back to mainland China, it’s important to take into account the country’s foreign tax credit policy. In mainland China, the foreign tax credits that can be claimed are limited to companies at the third-tier foreign entity level at most. Therefore, from the perspective of the ultimate shareholder in mainland China, a flat organizational structure is more advantageous.

　　Another way to reduce the effective tax rate is to finance German investments through debt. To do this, it’s important to pay attention to Germany’s interest limitation rules. Typically, no withholding tax is required on interest payments, and there’s significant tax arbitrage between Germany and Hong Kong (which is not part of mainland China). Therefore, you should take full advantage of your debt-financing capacity.

　　When acquiring (or establishing) multiple legal entities, consider adopting consolidated taxation to integrate the tax outcomes of all entities.

　　3. UK Preferential Policies and Tax System

　　The UK offers a wide range of tax incentives. R&D expenditures can be doubled as a deduction from taxable income; the “patent box” tax regime imposes a 10% tax rate on profits earned by companies from commercial activities involving patents, enabling businesses to retain most of the revenue generated by their patents and thereby maximizing profits. A series of tax incentives are available for innovative industries. Tax incentives have been established in 24 enterprise zones. Expenditures on certain energy-saving resources can qualify for a 100% tax deduction in the year of acquisition. Additionally, the Annual Investment Allowance (AIA) provides tax benefits.

　　Receive preferential policies.

　　The British government is committed to maintaining a low-tax regime in order to enhance its attractiveness to foreign investors. In the UK, taxation is divided into two levels: central taxes and local taxes. Central taxes include personal income tax, corporate income tax, value-added tax, national insurance contributions, and fuel duty; local taxes primarily refer to property tax.

　　4. Italy’s Tax Incentives and Tax System

　　Italy offers a wide range of preferential policies for corporate investment in capital increases, tailored to meet the key needs of business activities and reflecting specific objectives. To reduce reliance on foreign energy sources and promote the development of renewable energy, Italy provides financial incentives such as feed-in tariffs and electricity price subsidies. It also offers grants for investments in specific regions and industries designated according to EU standards; incentives for production activities; supportive policies for research and development; preferential treatment for comprehensive integrated investment projects; and special benefits for small and medium-sized enterprises.

　　In addition, Italy offers preferential policies for the less developed economic regions in the south; goods entering bonded export processing zones enjoy zero-tariff treatment.

　　Italy’s tax system is based on two types of taxes: direct taxes (income tax) and indirect taxes.

　　The main direct taxes include individual income tax, corporate income tax, and business and commercial property tax. The main indirect taxes include value-added tax, registration tax, urban real estate tax, and cadastral tax. Italy adopts a residence-based tax system for its residents and enterprises. Generally, the following are considered domestic enterprises for tax purposes: joint-stock companies, limited liability companies, and stock corporations.

　　Non-resident entities are liable to pay taxes only on income generated within Italy. For corporate income, a prerequisite is that the entity must have a permanent establishment in Italy.

　　5. Netherlands’ preferential policies and tax system

　　To encourage entrepreneurship, promote corporate innovation, and develop energy-saving and environmentally friendly industries, the Dutch government and the European Union have introduced a number of incentive measures that eligible foreign-invested enterprises can take advantage of.

　　Encouragement policies for small and medium-sized enterprises (SMEs) and startups include: tax incentives, such as R&D tax credits, VAT exemptions, and subsidies for small-scale investments; credit support for SMEs, including unsecured loans, venture capital guarantees, and enterprise loan guarantees; and comprehensive business action plans that provide start-ups and SMEs with all-round support in areas such as financing, R&D and innovation, taxation, and overseas expansion. In addition, there are financial supports aimed at encouraging enterprises to export and make foreign investments, tax reductions and subsidies for energy conservation and environmental protection, as well as tax incentives for R&D and innovation.

　　The Netherlands operates a two-tier tax system, comprising central and local taxation. It adopts a composite tax structure with income tax and turnover tax as its “two main pillars.” Among these, personal income tax, corporate income tax, value-added tax, and consumption tax play a crucial role in the tax system. Together with other direct and indirect taxes, they collectively form the Netherlands’ tax system.

　　Generally speaking, the Netherlands operates under a residence-based tax system: resident taxpayers are required to pay taxes on their worldwide income, while non-resident taxpayers are taxed only on income sourced from the Netherlands. Whether taxation is actually imposed often depends on tax treaties.

　　North America

　　6. U.S. Preferential Policies and Tax System for Foreign Investment

　　The United States adopts a neutral, incentive-based policy toward foreign investment. The U.S. generally welcomes foreign investment and does not have comprehensive federal regulations specifically targeting new investments or expansions by both domestic and foreign enterprises. At the federal level, investment incentives include tax breaks, financial support, information services, and technical assistance, with a primary focus on clean energy and related industries.

　　In recent years, the role of state and local government foreign investment policies in the overall U.S. foreign investment policy has grown, making them a key factor that foreign investors consider when deciding to invest in the United States. The main incentives include extensive tax breaks tailored to specific situations (including for R&D activities), various temporary expense provisions designed to accelerate depreciation deductions, as well as the issuance of industrial bonds, improvements to infrastructure levels, and the provision of specialized services.

　　The current U.S. tax system is one of the most complex tax frameworks in the world. Income taxation combines both “territorial” and “personal” systems. The federal income tax rate in the United States is among the highest globally, and many states and localities also impose income taxes on businesses. As a result, a company’s effective tax rate (ETR) and its cash tax rate can vary significantly—not only depending on the jurisdiction but also on the tax structure chosen at the time of investment. In addition to these, operating in the U.S. involves other types of taxes, such as sales and use taxes, local property taxes, and individual income taxes levied on both U.S. citizens and foreign nationals.

　　7. Canada’s Tax Incentives and Tax System

　　Canada’s corporate tax incentives typically involve lowering the standard corporate tax rate to promote business growth. The Canadian federal government offers “small-business tax rates,” reducing the federal corporate income tax rate for small businesses.

　　Privately held Canadian companies can claim a refundable investment tax credit of up to 35% on eligible expenditures for scientific research and experimental development (subject to an annual expenditure limit). Companies that do not qualify for the refundable investment tax credit may apply for a non-refundable investment tax credit of 15%. Each Canadian province also offers its own R&D tax incentives.

　　The federal government and provincial governments also offer a wide range of tax incentives for various forms of media and environmental improvements. Canada provides businesses with a variety of other tax benefits as well. Depending on the province or territory where they operate, manufacturing and processing enterprises can apply for corresponding provincial or territorial tax reductions. Privately owned Canadian-controlled enterprises’ wholly-owned subsidiaries that are non-tax residents enjoy an even broader array of tax reduction benefits.

　　Canada’s tax system operates on a three-tiered structure—federal, provincial, and local. Both the federal and provincial governments have relatively independent tax legislative powers, while local taxation is delegated by the provinces. Due to the decentralized nature of the system, provincial tax policies enjoy considerable flexibility. Provinces have a degree of autonomy in determining tax types, collection methods, and the distribution of tax burdens. However, provincial tax legislation must not conflict with federal tax legislation.

　　Canada’s current major tax categories include personal income tax and surtaxes, corporate income tax and surtaxes, social security tax, goods and services tax, consumption tax, customs duties, special anti-dumping duties, resource taxes, land and property taxes, and capital taxes. At the federal level, the primary tax is personal income tax, supplemented by social security tax and goods and services tax; at the provincial level, the main taxes are personal income tax and payroll tax, with social security tax serving as a supplementary component; and at the local level, property tax is the dominant tax.

　　Oceania

　　8. Australia’s preferential policies and tax system

　　The Australian government provides relevant information, advice, and support for major projects, assists with obtaining the necessary government approvals, and may also offer funding for feasibility studies. Particularly significant projects can be recommended to the federal government to secure incentives such as financial assistance, tax concessions, and infrastructure services. Preferential treatment for establishing regional headquarters includes the deduction of certain relocation expenses from taxes, with a deduction period spanning 12 months before and after the receipt of the first income.

　　For R&D expenditures that meet the prescribed requirements, a company can claim a refundable tax credit of 43.5% if the group’s annual revenue is less than AUD 20 million; in other cases, the company can claim a non-refundable tax credit of 38.5%. The total limit for R&D expenditures eligible for these tax credits is AUD 100 million. For R&D expenditures exceeding this total limit, the tax credit will be calculated based on the company’s applicable tax rate.

　　Residents and employers in remote areas will receive a certain degree of tax relief, including reductions in welfare taxes and income taxes. The Northern Australia Infrastructure Fund provides preferential financial support.

　　Australia’s tax system is federal in nature, with legislation overseen by the federal government’s Department of the Treasury. The Australian Taxation Office serves as the tax collection agency. Australia operates a dual tax system, dividing tax revenues into central and local taxes. The federal government primarily collects the following taxes: personal income tax, corporate income tax, goods and services tax, welfare tax, compulsory superannuation contributions, customs duties, and excise taxes. State governments mainly levy taxes such as payroll tax, stamp duty, land tax, and transaction taxes on certain commercial transactions. Direct taxes constitute the mainstay of Australia’s tax system.

　　Asia

　　9. Japan’s Investment Incentive Policies and Tax System

　　The Japanese government is actively committed to attracting foreign investment into Japan. The Japanese Ministry of Economy, Trade and Industry has launched the “Support Program for Regions Attracting Foreign Enterprises,” allocating a special fund of 500 million yen. It has entrusted the independent administrative agency, the Japan External Trade Organization (JETRO), with providing support for local governments’ efforts to attract foreign investment. This support includes conducting surveys on potential investment targets, inviting executives from foreign companies to visit Japan for fact-finding missions, dispatching experts, and other related expenses. Each region will receive a dedicated subsidy.

　　To attract foreign companies to invest in Japan, Japan’s Ministry of Economy, Trade and Industry is currently studying and exploring preferential policies for foreign-invested enterprises. These policies include reducing or exempting corporate tax and income tax for a specified period, based on factors such as investment amount, target industries, and number of employees hired. Additionally, the ministry is streamlining immigration procedures for visas issued to technical personnel and other specialists. At the same time, it is examining the establishment of a single, centralized point of contact for investment promotion consultations and negotiations on preferential policies.

　　In addition, the Japanese central government’s institutional support for promoting investment in Japan also includes establishing a comprehensive guidance center for direct investment in Japan, setting up a complaint-handling mechanism for market-opening issues, and encouraging local governments to offer preferential policies to foreign-invested enterprises.

　　Japan adopts a “territorial tax system” for corporate entities. Any corporate entity conducting economic activities in Japan is required to pay taxes in Japan on the profits generated from those activities. When Japanese corporations earn profits from overseas operations, to avoid double taxation, regulations have been established allowing them to deduct, within certain limits, the taxes already paid abroad from their tax liabilities in Japan. Multinational corporations operating in Japan calculate and pay their due taxes by either withholding tax at source or filing tax returns once they reach a certain level of taxable income.

　　Japan imposes nine types of taxes on corporate and individual income, including six national taxes and three local taxes. Four taxes are levied on circulation transactions, comprising two national taxes and two local taxes. In addition, Japan’s customs authorities impose another 19 taxes on the consumption of goods and the ownership and transfer of property.

　　10. India’s Tax System

　　India’s tax system is based on the Constitution, and the government cannot impose taxes without parliamentary authorization. India operates a three-tier tax system—central, state, and local—where the taxing powers of each level of government are clearly delineated. However, the tax system is highly complex. Each year, the Indian Finance Minister publicly announces the following year’s fiscal budget, which includes proposed amendments to existing direct and indirect tax laws.

　　In addition, to avoid double taxation, India has signed bilateral economic agreements with several countries, including China. Taxpayers may, based on their specific circumstances, choose either to benefit from the applicable tax treaty provisions or to pay taxes in accordance with their home country’s tax laws. If they opt for the tax treaty benefits, they will need to provide the tax residency certificate issued by that country as well as other relevant information required.

　　India is expected to introduce a new Goods and Services Tax (GST) on July 1, 2017, replacing most of the current indirect taxes on goods and services. This will also become one of the largest tax reforms in Indian history.

　　11. Singapore’s Tax Incentives and Tax System

　　The preferential policies adopted by Singapore are primarily aimed at encouraging investment, boosting exports, creating more employment opportunities, promoting research and development as well as the production of high-value-added technology products, and enhancing the overall dynamism of economic activities. For instance, certain industries and services—such as high-tech and high-value-added enterprises—as well as large multinational corporations, R&D institutions, regional headquarters, international shipping companies, and export-oriented enterprises—are eligible for tax exemptions or reductions for a specified period, along with financial support. In general, foreign-invested enterprises can enjoy the same preferential treatment offered to local enterprises under the various policies introduced by the government. These policies are mainly categorized into industry-specific incentives, global trade subsidies, preferential measures for small and medium-sized enterprises, and innovation incentive programs.

　　Singapore is a city-state with a unified tax system nationwide. Singapore taxes based on the “territorial principle”—anyone (including corporations and individuals) who earn income in Singapore is required to pay taxes there.

　　In addition, income earned overseas and received in Singapore is also subject to income tax, unless it qualifies for a tax exemption.

　　Singapore’s current major tax types include corporate income tax, personal income tax, consumption tax, property tax, and stamp duty. In addition, there is also a labor tax imposed on Singaporean companies that hire foreign workers.

　　12. South Korea’s Preferential Policies for Foreign Investment and Tax System

　　The Korean government’s incentive policies for foreign investment include providing compensation to foreign enterprises that generate significant economic benefits from their investments, as well as alleviating the financial burden on foreign-invested enterprises whose investment conditions are relatively less favorable compared to domestic enterprises. These incentives primarily take the form of tax reductions and exemptions, allowing eligible foreign-invested enterprises to enjoy exemptions or reductions in national taxes such as corporate tax and income tax, as well as local taxes including acquisition tax, registration tax, property tax, and comprehensive land tax. Other preferential policies include reductions or exemptions in lease fees for state-owned and publicly owned land, cash subsidies, employment support, service support, and establishment assistance.

　　Foreign-invested zones and a series of regional support policies.

　　In addition, income earned by foreign technical personnel for providing services to Koreans within South Korea, income from providing highly skilled technical services to foreign-invested enterprises that enjoy corporate tax exemptions, and salary income of senior executives at foreign-invested enterprises may be eligible for income tax benefits.

　　South Korea has a relatively well-developed tax system that is highly transparent and strictly enforced. South Korea’s taxes are primarily divided into national taxes and local taxes. Currently, there are 14 types of national taxes and 11 types of local taxes; the vast majority of tax revenue comes from national taxes.

　　National taxes are levied on citizens to ensure revenue for the central government and are primarily administered by two key agencies under the central government: the National Tax Agency and the Customs Administration. National taxes broadly consist of customs duties and domestic taxes, which are categorized into direct taxes and indirect taxes.