China Will Give Foreign Firms At Least Five Years To Adjust To Higher Tax Rates

by Mary Swire, Tax-News.com, Hong Kong

30 March 2005

A Chinese government spokesman has assured foreign firms operating in China that they will benefit from a transition period of at least five years in the run up to the unification of the Chinese corporate tax system.

According to a report by state media agency Xinhua, Jia Kang, head of the Finance Ministry's Institute of Fiscal Science, was quoted as announcing that foreign-funded firms would likely have a cushion of seven to eight years before being required to pay the same amount of tax as their domestic counterparts.

Following China's Vice-Minister of Finance, Xiao Jie’s assertion earlier in the month that the government is committed to implementing tax reforms over the next five years, Jin stated that any changes are unlikely to be in place before 2007, as officials work out details of the new tax system.

In January, 54 major international companies joined forces to lobby the Chinese government, accepting the need for unification, but asking for a transition period of five to ten years, a request which has now effectively been granted.

Jin indicated last week that the new unified rate was likely to be set at around 25%, constituting an effective corporate tax increase of around 10% for foreign funded firms, and an 8% cut for domestic enterprises.

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