“While this represents a reduction from the previous rate of 33%, some overseas companies operating in China are used to 15% rates, or less, and many others were granted tax holidays and other incentives. In many cases overseas companies have been paying no corporate tax at all for several years,” he says. New overseas companies setting up in China will now pay 25% corporate tax on their Chinese operations – exactly the same as their domestic counter-parts.
“International companies already set up can continue to use tax holidays for a limited period, but they too will soon be paying corporate tax at 25%.”
The legislative changes, however, provide relief for certain sectors of the business spectrum. “Incentives previously aimed at encouraging foreign investment are now being pushed towards hi-tech and environmentally-friendly companies, with a raft of measures, including a 15% tax rate for hi-tech companies (domestic or international) as well as generous tax breaks for research and development and environmental spending,” Weatherseed says.
Weatherseed says the corporate tax reforms appear to be in response to China’s growing trade imbalance and the social and environmental issues coming out of this economic growth.
