China's corporate tax law will not affect tax revenues

China's corporate tax law will not affect tax revenues - Pricewaterhouse Coopers

	Published : Mon, 12 Mar 2007 09:27 By : Agencies Print this Story

BEIJING (XFN-ASIA) - China's proposed unified corporate income tax law (CIT) will not greatly affect tax revenues, Pricewaterhouse Coopers (PwC) said in a research note.

'Given the strong fiscal income trend of China in recent years, the possible reduction in tax collection arising from the CIT reform should be affordable and manageable,' the accounting firm said.

It will, however, cause significant and long-term impacts to the income tax landscape for domestic enterprises and foreign invested enterprises (FIEs), it said.

The CIT law will see the introduction of a unified, or standardized, tax rate of 25 pct for both FIEs and domestic enterprises.

FIEs currently pay a rate of 15 pct or 24 pct while domestic enterprises pay 33 pct.

Whilst the standardized tax rate of 25 pct will be imposed on all companies, there will still be a broad spectrum of preferential terms available.

Small and low profit companies are eligible for a reduced tax rate of 20 pct while high-tech enterprises will pay 15 pct.

Tax incentives will be retained on investments in agriculture, forestry, animal husbandry, fishery and infrastructure and widened to include venture capital investments in environmental protection, energy and water saving and safe production techniques.

Newly established high-tech enterprises in special economic zones, including the Shanghai Pudong New Area and 'encouraged enterprises' in Western regions, will continue to get tax dispensations.

Tax-exempted income will include interest from state bonds and qualified investment income such as dividends paid between tax resident enterprises (TREs).

TREs -- any enterprise which is established within or has its 'effective management office' based in China -- will be eligible for full CIT on worldwide income.

Non-TREs will pay tax only on China source income, PwC said.

Reduced tax rates on foreign invested enterprises will gradually increase to the standardized rate of 25 pct over five years after the implementation of the CIT law, lessening the impact it will have on firms' balance sheets.

'There should not be significant negative impacts to the existing FIEs considering the availability of the grandfathering treatments,' PwC said.

The proposed tax law is expected to be passed in the current session of the National People's Congress, China's top legislature.

fergus.naughton@xfn.com

China's corporate tax law will not affect tax revenues - Pricewaterhouse Coopers