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High-Technology Companies May See Tax Savings Under China's New Tax Law

Hong Kong (PRWEB) July 25, 2008 -- China's move to even the tax rates for foreign and local companies this year has hit bottom lines, but some high-tech firms may be spared the 10 percent hike, financial consultancy Zetland says.

The Enterprise Income Tax law, which came into effect on January 1, 2008, unified income tax rates for domestic and foreign companies at 25 percent. Previously, the rate for foreign firms was 15 percent. The move came after years of criticism that the dual income tax mechanism was unfair to domestic enterprises.

Hong Kong-based Zetland Fiduciary Group reports on its website that some firms can still enjoy a reduced rate of 15 percent if they qualify as an "Advanced and New Technology Enterprise."

To qualify, companies must own core proprietary intellectual property, meet certain levels of research and development expenditures, and employ a certain number of R&D personnel, says Zetland's chief representative in Shanghai, Jack Wu.

"Given this potentially very favorable tax treatment, companies should be critically assessing whether they qualify and if not, whether they can take steps to qualify," says Wu.

An agency will be established by the Chinese government to perform the initial review, assessment, and approval of the tax breaks, Wu says.

China is gradually taking back preferential policies toward overseas-funded businesses. Preferential taxation and land policies, which are described as "policies superior to national treatment," have always been important attractions to overseas investment since China began to reform and open up in the late 1970s.

Generous tax incentives have fueled foreign capital influx. China has been one of the world's top destinations for foreign direct investment, taking in 53.5 billion U.S. dollars in 2003, 60.6 billion U.S. dollars in 2004, and 60.3 billion U.S dollars in 2006.

But problems surfaced along with China's rapid economic development. The dual income tax rates led to growing complaints from domestic enterprises, some of which even disguised themselves as overseas-funded businesses to dodge taxes.

Analysts have pointed out that the 25-percent tax rate is still favorable compared with those in some countries. The average enterprise income tax rate is 28.6 percent in 159 countries and regions around the world.

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