NEWSFLASH: No Escape from Beijing’s Corporate Tax Law Review
Tax pundits recommend that foreign businesses looking to establish operations in China move quickly while the door to preferential tax treatment is still open to foreign investors. Investors were also advised to make a claim for the favourable tax treatment before the recommendations to reform the Corporate Tax laws are submitted to the National People’s Congress in August 2006, to enjoy grandfathered tax benefits beyond 2008.
The Ministry of Finance is due to submit their recommendations in August aimed at unifying the corporate tax law for foreign and domestic enterprises which are currently taxed at 14% and 33% respectively to a unified corporate tax rate which is expected to be around 24% to 28%. This may potentially double the tax liability of the foreign investor should the tax rate be fixed at the higher end. If passed, the law is expected to be in force by January 2008. Nevertheless, foreign enterprises are promised a reasonable transitional period, and varying preferential tax rates will apply for businesses established in certain economic zones.
The underlying message to foreign investors entering the China market appears to be act now to avoid a higher tax bill in the long-term. As for foreign businesses conducting trade with China, Hong Kong continues to offer an attractive gateway with a corporate tax rate of 17.5% and which may be lowered to 0% if the profits are deemed to be derived offshore.
Since 1980, ICS Trust (Asia) Limited has been assisting SMEs and entrepreneurial corporates from all over the world establish operations in Asia. Please contact one of our senior managers for further information or advice about establishing your business operations in China by emailing us at ics@icstrust.com or by phone on (852) 2854-4544.
For more information about doing business in China or in Hong Kong, please visit our website at www.icstrust.com.
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