25%, China's New Corporate Income Tax Rate

By Simon Lee at www.PathToChina.com

China’s new Corporate income tax law got approved in the Fifth Session of the Tenth National People's Congress, which was held on March 16, 2007. This law attracted widespread attention at home and abroad for the unified Corporate income tax rate of foreign Corporates [WFOE, Joint Venture] and domestic Corporates.

In the New Corporate Income Tax Law, the unified Corporate income tax rate is 25%, while China’s current Corporate income tax rate for both foreign Corporates and domestic Corporates is 33%, but the foreign Corporates with production nature located in special economic zones and economic and technological development zones still enjoy the preferential tax rates of 15% or 24%. Since only the foreign Corporates, which were operating in special economic zone or in economic and technological development zone, could enjoy the preferential tax rates, the new tax rate of 25% would actually lighten the tax burden of foreign Corporates. On the contrary, it would create a more regulated and transparent investment environment in China. For instance, in Shanghai, Wholly Foreign Owned Enterprise [WFOE] usually need to pay 33% Corporte Income Tax in Puxi [west of huangpu river region]. With this New Corporate Income Tax Law, the tax reduced to 25% in Puxi for WFOE and Joint Venture Company.

In the law, it mentioned that A 5-year grandfathering period be granted to enterprises approved before the publication of the new Law.

Accoring to the la, existing tax holiday and incentives will grandfathered to a certain extent, and related details are expected to be covered in the implementing regulations.

The new Corporate income tax law will be implemented in January 1, 2008. In the meantime, the old Income Tax Law of the People's Republic of China for Corporates with Foreign Investment and Foreign Corporate which was promulgated on April 9, 1991 will be canceled.

State Council will be issuing Detailed Implementation Rules following the enactment of the CIT Law in order to provide definitions of various important terms and to explain the needed details of implementation especially on the grandfathering arrangements and application of new incentive policies.

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