(Yicai Global) Aug. 18 -- China's cabinet, the State Council, has unveiled a regime of new fiscal and tax incentives including tax deferrals in an effort to attract foreign investors amid increasing global competition. The government is also encouraging domestic enterprises to repatriate their overseas investments.

The new measures will lift market access restrictions on foreign investment and improve the overall investment environment for state-level development areas, the cabinet said in a press briefing on Aug. 16. They will also simplify customs formalities for foreign business professionals.

The new policies will help improve the effectiveness of foreign capital use, encourage Chinese companies to repatriate investment earnings generated abroad, and stimulate technology service innovations, said Li Jun, corporate tax director at PricewaterhouseCoopers China.

Under the new rules, when a foreign investor reinvests profits derived from a domestic enterprise directly in a business supported by the government, they will become eligible for tax deferrals and exempted from withholding taxes.

"By granting exemption from withholding taxes for reinvestment by foreign businesses, the government sends out a clear signal, which will surely bolster foreign investor confidence," Li said.

The government will increase the number of cities able to provide corporate income tax incentives for technologically-advanced service businesses, thereby boosting foreign capital in high-tech and high value-added service sectors.

China has already piloted the incentives in 31 designated cities for service outsourcing, where corporate income tax is levied at a reduced rate of 15 percent for officially-designated technologically advanced service companies, Li added. Companies can also deduct training expenses equal to up to eight percent of total wages from their taxable income.

"By introducing this policy to all Chinese cities, the scheme gives foreign businesses more options when choosing investment locations, thereby encouraging them to invest in high-tech and high value-added service enterprises," Li added.

The plans also include outbound investment projects, with tax incentives offered to domestic companies (including regional headquarters of multinational companies) that repatriate overseas earnings back into China.

The incentives will encourage multinationals to set up regional headquarters in the country and local governments will introduce relevant financial support policies. There will also be a concerted effort to divert foreign capital toward western regions and traditional industrial bases in the northeast, with an emphasis on the development of investment platform infrastructure and major construction projects.