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China: Foreign Corporate Tax Breaks to Be Phased Out

(Dec. 2, 2007) Xinhua News Agency, citing the CHINA SECURITIES JOURNAL, reported on November 14, 2007, that the final draft of new implementing regulations for China's new Corporate Income Tax Law that will align domestic and foreign tax rates has been submitted to the State Council (Cabinet) for approval. According to an unidentified expert on the issue, the current preferential tax rate of 15 percent for foreign companies in special bonded zones, economic development zones, and high- and new-technology development zones will gradually rise to 18, 20, 22, 24, and finally 25 percent (that of domestic companies), over a five-year period. However, foreign businesses that have a tax holiday will retain the concession for the full ten years (five tax-free and five at up to 50 percent tax reduction) before becoming subject to the new rates, and those companies that invest in China's central and western regions will continue to enjoy the 15-percent rate until 2010.

The regulations will set forth new criteria for high- and new-technology firms, which will also be taxed at the 15-percent rate, but the criteria will make it harder for companies to gain that status of investor. According to the expert, the high-and new-technology firms "would no longer enjoy the status forever and qualifications will be re-evaluated every one or two years. Those who fail to meet the standards would be disqualified." Other provisions in the draft regulations set forth favorable tax policies for infrastructure projects, environmental protection, and water and energy conservation. The Corporate Income Tax Law was adopted on March 16, 2007, and its enforcement date is January 1, 2008. (Id.; see also Latest Insights into China's New Corporate Income Tax Law and the Draft Detailed Implementation Regulations, 17 CHINA TAX/BUSINESS NEWS FLASH (Sept. 2007), available at