Asia Times Online :: China Business News - Foreign firms in China to lose tax privileges

China Business

Jan 4, 2007

Foreign firms in China to lose tax privileges

BEIJING - While foreign-invested firms may not like it, Chinese businesses are cheering as a new, more even playing field on which the two compete will bring an end to many special privileges enjoyed by overseas companies.

As of January 1, Sino-foreign joint ventures and wholly foreign-owned firms are no longer exempt from paying land-use tax. Also, later this year a new corporate income tax structure is expected to be passed and implemented that will see foreign and domestic

firms taxed at the same rate, ending years of special corporate tax breaks for overseas firms.

The land-use or property-tax rate will now apply equally to both local and foreign developers and will triple the old rate set in 1988.
In large cities the annual property tax rate will range from 1.5 yuan to 30 yuan (19 US cents to $3.85) per square meter depending on its location and type of use. In medium-sized cities the rate will range from 1.2 yuan to 24 yuan per square meter, in small cities the rate will vary from 0.9 to 18 yuan and counties, townships and mining areas property will be taxed at a rate of between 0.6 yuan to 12 yuan per square meter per year.

This first revision of land-use tax regulations since 1988 is aimed at bringing better control and better planning to the development and redevelopment of land, according to sources with the Legislative Affairs Office of the State Council, China's cabinet.

"The rate increase is reasonable when you consider the country's Consumer Price Index in 2005 was 2.1 times [as high as] in 1987," said the sources, citing figures of the National Bureau of Statistics.

The new regulations will also bring to an end the unfair treatment of domestic companies, which have had to pay taxes and fees from which overseas firms have been exempted for nearly two decades, they said.

The State Council will begin on July 1 a three-year program to develop a comprehensive land-use registry that will involve surveying every parcel of land and classify its use to protect agricultural lands and allow for more coherent development on land zoned for industrial, commercial or residential use.

The Ministry of Land and Resources has warned individuals and organizations that those who make false reports on local land use will be punished by law.

Low land-use costs and tax exemptions have been the major tools China has used to open its economy to foreign investment since the late 1970s.

Late last month, China's top legislature began discussing a new law on corporate income tax that is likely to result in a unified tax rate of 25% for both domestic and foreign companies. If the law is approved, foreign firms are likely to lose a major tax advantage.

Despite a stated corporate tax rate of 33%, foreign firms often benefit from tax waivers, credits and incentives that bring their tax rate down to an average of 15%. Domestic companies on average are taxed at a rate of 24%.

The land-use and tax changes to ensure foreign and domestic companies are treated equally are being seen as a coming of age for China's economy, the power of its domestic market and the initiative and abilities of its local entrepreneurs.

(Asia Pulse/XIC)

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