Chinese Government To Continue Preferential Taxes for Non-Chinese Firms
The Chinese government will continue preferential taxes for non-Chinese companies at less than half the rate for Chinese companies until at least 2007. This move is seen as continuing to offer favored treatment for investment in China, even though China has been the single largest recipient of foreign direct investment (FDI) in the world.
Chinese corporations are taxed at 33%, while non-Chinese firms are taxed at 15%. In 2004, the Chinese government said that it would unify the tax regimes at a rate of 24-28%. The move was greeted with a certain amount of apprehension, and it was seen as a desperate move to soak up excess liquidity in the Chinese market by a somewhat clumsy means. Since then, most do not see Chinese or non-Chinese companies as the problem, and see such a policy as being too heavy-handed, without really being able to address the root cause of excessive investment in some sectors.
Non-Chinese companies did not greet the announcement with open arms, and neither did Chinese companies, even though they would have seen lower corporate taxes.
The promise to unify tax regimes was largely because of commitments made when China agreed to join the World Trade Organization (WTO) in 2001. Since then, China's rapid growth has put the Chinese yuan's dollar peg, and monetary policy, into the crosshairs of US, European and Japanese government policymakers. The result has been that taxation issues have fallen by the wayside, and have become a non-issue.
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