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China Cuts Corporate Tax Rates

by Mary Swire,, Hong Kong

24 September 2007

China's State Administration of Taxation has announced that corporate taxes will be cut for companies in eight industry sectors, as part of its ongoing efforts to standardise the country's corporate tax system.

The new corporate tax rates are effective immediately, and replace tax rates put into place in 2000. The entertainment industry is set to benefit the most from the changes, with corporate tax for firms in the industry falling by between 20% and 40%.

According to the Interfax news agency, the new corporate tax rates by industry are as follows: agriculture, forestry, animal husbandry, and fishery 3% to 10%; manufacturing 5% to 15%; wholesale and retailing 4% to 15%; transport 7% to 15%; construction 8% to 20%; catering 8% to 25%; entertainment 15% to 30%; and other industries 10% to 30%.

Tax rates for real estate companies have been left on hold at between 10% and 20%.

The SAT said that local governments will have the freedom to set corporate tax rates for these industries within the prescribed ranges. Corporate tax rates are expected to be higher in the western regions of China where industry is sparse compared to the east, and local governments have less sources of tax revenues.

An important new corporate tax law harmonising the rates paid by domestic and foreign enterprises is due to come into force in China on January 1, 2008. The proposed law, which was put before the tenth National People's Congress - China's highest legislative body - in March 2007, would unify corporate tax at a rate of 25%. While this would mean a cut in tax for domestic firms, foreign-backed companies would likely see their tax bill increase.

The headline rate of corporate tax in China is 33%, but foreign-backed companies can take advantage of many investment incentives to effectively reduce their corporate tax rate to as low as 10% in some cases.

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