China Gives Foreign Companies 5 Years To Pay New Taxes

Foreign companies in China will get at least a five-year cushion period to adjust to new rules that will eventually make them pay the same tax rates as local rivals, state media reported March 28. The government may extend the period to six or even eight years as it unifies tax regimes for local and foreign companies, Xinhua news agency said, citing Jia Kang, head of the finance ministry's Institute of Fiscal Science.

This means that it could be halfway through the next decade -- or 14 years after China's entry into the World Trade Organization which originally forced the rule change -- before foreign and local companies pay the same rates.

Jin said last week the harmonized tax rate would likely be about 25% on all companies, compared with the current 15% corporate tax for foreign-invested companies and 33% for their domestic counterparts.

He said the new tax regime would not mean the end of preferential taxes for foreign invested companies, saying support for enterprises in compliance with industrial policies "would continue and may even improve." Although foreign companies officially appear to pay much lower rates than local enterprises, the real situation may be more complicated on the ground. Well-connected Chinese companies are widely believed to be paying rates considerably below the official level.

Copyright Agence France-Presse, 2005

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