China’s Tax Reforms ‘Will Not Hurt Foreign Investors’ Government Promises

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

13 September 2005

China's Finance Minister, Jin Renqing, confirmed on Friday that a unified rate of corporate tax for domestic and foreign-backed companies will be introduced gradually so as not to curtail the level of foreign investment in China.

"For foreign-invested companies, including Taiwanese companies, we have already undertaken that advantageous tax policies will continue," Jin was quoted by Chinese state media as stating. He added that: "There will be an appropriate transition period" to the new tax regime.

Jin gave no indication as to when China will begin to introduce the new corporate tax regime, but was keen to emphasise that foreign investors would not be harmed by the new rules.

According to government statistics, there are over 40,000 foreign-invested companies in China, and approximately US$60 billion was invested in China from foreign sources during 2004.

"I believe that the tax reform will not affect foreign investment or Taiwanese investment on the mainland," Jin told reporters in Jeju, South Korea.

"We are actively preparing the specific plan. We will announce it at an appropriate time," he added.

Beijing first indicated its intention to unify the corporate tax rate in 2003, saying that the differential rates (11% to 14% for foreign companies versus 24% for local companies) amounted to unfair competition. In March, Jin, a notable hawk on the issue, proposed levelling up the rate to 24% for all companies, asking: "The Chinese market is the best in the world, so how could foreign investments ever disappear?"

Whilst foreign firms have accepted the need for unification, 54 major international companies joined forces in January to lobby the Chinese government for a transition period of five to ten years, something which the government appears to have taken on board.

Recommended