Tax breaks disappear in draft of corporate income tax implementation rules

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By Andy Scott

SHANGHAI, Nov. 15 – China has drafted executive regulations for a new corporate income tax law that will harmonize the domestic and foreign rates, and the final draft has been submitted to the State Council for approval, the China Securities Journal reported on Wednesday, citing an expert close to the issue.

The income tax rate for foreign companies in special bonded zones, which previously enjoyed a preferential rate of 15 percent, will rise in stages to 18 percent, 20 percent, 22 percent, 24 percent and finally 25 percent, the same as domestic companies, over five years, according to the final draft of the executive regulations for the new corporate income tax law.

The China Securities Journal reported yesterday that the arrangement would apply to bonded zones like the Shenzhen Special Economic Zone, economic development zones set up in coastal cities like the Hongqiao Economic and Technological Development Zone in Shanghai, and high- and new-tech development zones.

According to Xinhua, an unidentified expert said the 24-percent rate for foreign companies established in coastal regional development zones, such as the Yangtze River Delta and the Pearl River Delta, would rise directly to 25 percent in 2008.

This direct rise will not affect foreign companies that currently have tax holidays, which provide for five tax-free years and another five years of up to 50 percent reduction. Foreign companies that currently enjoy a tax holiday will retain those concessions for the full 10 years before facing the new higher rates.

In addition, in its continued effort to spur stagnant development in central and western regions of China, a 15-percent rate will be retained until 2010 for foreign companies that invest in those areas.

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