Tax policy set to benefit startups

Initiatives proposed in the Shanghai free trade zone will provide tax incentives for foreign companies, which will especially benefit startups.

The FTZ policies published on Friday stipulate that companies registered in the zone can opt to pay income tax in installments over five years. What's more, professionals working for companies in the zone can also pay tax on their stock options in installments.

Walter Tong, managing partner of tax services for Ernst & Young in China, said that the new tax policy will benefit companies in general.

"As long as the company can pay the income tax in installments within five years, its cash flow will be secured, thus making room for smooth operation," he said.

Crystal Yao, senior consultant at Deloitte Shanghai, said the policy will be particularly beneficial to startup companies.

A startup company usually needs to invest most of its income at the beginning to grow.

"If they are allowed to defer the tax payments, they will need to pay only a relatively small amount of tax every year. In this sense, they will be less burdened by taxes. Startups will thus have a more flexible cash flow during the first few years," Yao said.

Meanwhile, foreign investors may own up to 70 percent of joint venture human resources companies, while those from Hong Kong and Macao can set up solely funded human resources companies, according to the new policies.

The requirement for paid-in capital for foreign-funded firms will be reduced to $125,000 from the current $300,000.

Wu Qiang, partner and general manager of GMP Talent International, a Shanghai-based joint venture human resources company specializing in executive hiring, welcomes the policy as it provides more latitude for foreign capital to enter the human resources market.

"The local authorities used to pose stricter requirements on foreign capital to enter the local market. Now they have lowered the threshold. More small and medium-sized human resources joint ventures will be able to compete in this market," Wu said.

Mindy Zheng, chief financial officer of FESCO Adecco, the largest multinational human resources company in China, said, "We are thinking of moving to Pudong, mainly because of the favorable tax policies there."