Due to its relation with a country’s interest, each country pays much attention to tax. It’s very important for people who want to invest in China to get a detailed understanding of its tax laws of course, which will make your investment going steady and legal.
Due to its relation with a country’s interest, each country pays much attention to tax. It’s very important for people who want to invest in China to get a detailed understanding of its tax laws of course, which will make your investment going steady and legal.
1. The Existing Taxation Structure
The previous tax structure is essentially uniform with all firms, regardless of the source of their funding, paying the same proportion of their profits in tax. There existed a base rate of 30% to which a surcharge of 3% could be added by local authorities. FIEs have been able to take advantage of an extensive range of incentives based on the industry sector of their business.
Additional tax breaks can be made available to FIEs if they choose to reinvest their share of profit, capital reserve, or enterprise and development and expansion reserve. Rebates of up to 40% are possible.
Firms in the manufacturing sector can be exempt from paying any tax for the first two years of making an operating profit and a 50% reduction in the standard tax rate for three years thereafter.
2. The New System
Many of the above incentives for foreign firms are to be either altered in some part or abolished completely under the new laws. The salient points of the new laws are a revised standard tax rate of 25% applicable to Chinese and foreign firms, a preferential rate of 20% available to certain low profit making enterprises, and a 15% rate for new or high technological enterprises.
The key point to note is that there has been a considerable shift in emphasis of the new legislation towards environmental industry rather than just attracting business regardless of its nature or impact on the environment.
3. Who will be affected?
The new laws are likely to have a widespread effect, but some parties will be affected more than others.
Apart from the specifics of the law the basic 25% rate will have an immediate effect. Manufacturing firms will certainly be hit as they will no longer be entitled to any kind of tax breaks. As a result they could face anything up to a 15% rise in the amount of tax they have to pay.
There will no longer be a 50% reduction of corporate tax for production-oriented foreign-funded enterprises or any exemption for export-oriented firms. There will, however, be leniency afforded to firms who have already been promised tax breaks; that is those that have invested in China before the passing of this new law.