Chinese begin tax system overhaul

Moves by the Chinese government to establish a corporate tax rate of 25% for
foreign and domestic firms by 2012 have begun in earnest.

The changes mean that some overseas companies with operations in China will
face a higher rate of tax than previously.

In a statement released by the Chinese ministry of finance, the five-year
phase-in period will see a tax rate of 18% imposed in 2008, 20% in 2009, 22% in
2010, 24% in 2011 and 25% in 2012. Some companies had previously enjoyed a tax
toll of 15% on earnings.

The Chinese policy makers started phasing in the new unified corporate income
tax requirements yesterday. The transitional measures apply to companies
registered with industry and commerce regulators before 16 March 2007.

Companies enjoying tax exemptions or other concessionary rates will continue
to be assessed at those levels until their privileges expire,
Interactive Investor
reported. These include preferential schemes covering companies in China’s
western regions.

Tax reliefs for technology companies registered in special economic zones,
including Shenzhen, Zhuhai, Shantou, Xiamen and Hainan, as well as in the
Shanghai Pudong new area, remain in force, the ministry said.

Companies enjoying technology related concessions are exempt from corporate
income tax for the first two years for earnings booked within the recognised
zones. They are then liable for 12.5% tax toll from the third to the fifth
years. Gains from outside the recognised zones will be assessed separately.

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