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Notice Given on FDI Tax Breaks

The State Administration of Taxation has announced that it plans to press ahead with unification of the tax system for local and foreign companies within the current 5-year plan. The move has been discussed for some time, and is part of the process to meet with WTO commitments. Details have yet to be confirmed.

Previous reports have suggested the change might come in 2007, with a likely rate of 24 or 25 percent – compared to the top rate of 33 percent now paid by local firms and the14-15 percent paid by many foreign firms (once their tax-free periods have expired). A 5-year transition period is anticipated for foreign companies entering before 31 December this year.

While flows of foreign investment will continue, foreign firms will be sorry to lose the official perk (though local authorities are likely to continue offering unofficial ones). Perhaps more foreign companies will start negotiating with the tax man, just like the locals have always done.

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