27 October 2010

China Axes Foreign Companies' Tax Break

The Chinese ministry of finance has announced that foreign companies’ current tax exemptions on the 1985 urban maintenance and construction tax and the 1986 education surcharge will be removed as of December 1, 2010 under a Notice issued by the State Council.

The Ministry of Finance announcement said that the differentiated tax system had played an important role in reforming and opening up the economy by attracting foreign investment and introducing foreign technology but now a unified tax system is needed to meet the requirements of the market economy and promote fair competition. The exemptions date back to 1993.

The announcement also suggested that the tax is affordable because in 2009 China had reduced the tax burden on enterprises with tax cuts of CNY5 trillion (USD750bn) under “a proactive fiscal policy, including a series of structural tax policies, including reform of corporate income tax, value-added tax, raising export tax rebates, increased personal income tax allowances, and reduce stamp duty”. The ministry of finance is confident that inward investment will not be affected.

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