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Foreign, Chinese Firms' Tax Burdens Unified

Data Analysis 10:08:18AM Dec 01, 2010 Source:SMM

BEIJING, Dec. 1  -- China is levying two taxes on foreign companies, marking the beginning of a standard national tax treatment for foreign and Chinese enterprises.

China will charge foreign firms with operations here two additional taxes (a construction tax and education surcharge) in a measure taking effect Wednesday, according to a State Council announcement in late November.

The measure makes most of the taxes imposed on domestic and international companies equal. But it also means foreign enterprises' expenditures on local operations will rise by up to 10 percent.

Analysts said the effect on foreign investors is limited, and they must adapt to the new situations in China and regard it as a market rather than just a low-cost production center.

"I don't think this will exert any negative effect on the growth of foreign direct investment (FDI) in China, given China's robust economic growth and increasing domestic consumption, which will steadily help the market maintain its appeal to foreign businesses," said Wang Zhile, director of the research center on multinationals under the Ministry of Commerce.

Ding Yifan, economist of the State Council's Development Research Center, agreed with Wang and said that in addition to tax policies, many other factors - including consumption-market size, labor resources and economic growth - could determine a nation's attraction as an investment destination.

"The measure itself will help to create a fair tax environment for companies at home and abroad," he said.

Early on in its reform and opening to foreign enterprise, China launched super-preferential tax policies for international companies in a bid to propel its economic growth, and the internationals were exempt from some taxes. Over the past few years, the preferential policies have gradually been phased out.

According to the Ministry of Commerce, China's FDI grew from January to October by 16 percent from a year earlier, and October is the 15th consecutive month that the FDI registered positive growth since the start of the financial crisis.

The European Chamber of Commerce in China said that foreign companies are gradually being treated the same as their local counterparts, sending a strong signal that China's investment environment and policies are maturing, and that European companies have been well prepared for the change. "We have no reason to complain about the additional taxes," said a chamber staff who declined to be named.

"But we will be paying close attention to how China will continue opening to foreign businesses in the future," the person said.

The European Chamber of Commerce in China released a confidence survey in June, revealing that 70 percent of its member companies believe China will be among their top three investment destinations in five years.

The new tax measure comes after China's investment environment was widely criticized by foreign businesses in recent months. Their complaints partially led to China calling off super-preferential policies during the past few years.

In 2007, China unified the corporate income tax on domestic and foreign companies at 25 percent. Previously, foreign firms paid a 15 percent corporate income tax rate, 18 percentage points lower than their Chinese counterparts. The move was a turning point in the super-preferential policies that internationals enjoyed for about two decades.

In April, China launched a new FDI guideline in which the government encourages foreign companies to invest in the service and high-tech sectors instead of manufacturing, and to invest in China's central and western regions.

 

Key Words:  tax  tax policy tax adjustment 

Foreign, Chinese Firms' Tax Burdens Unified

Data Analysis 10:08:18AM Dec 01, 2010 Source:SMM

BEIJING, Dec. 1  -- China is levying two taxes on foreign companies, marking the beginning of a standard national tax treatment for foreign and Chinese enterprises.

China will charge foreign firms with operations here two additional taxes (a construction tax and education surcharge) in a measure taking effect Wednesday, according to a State Council announcement in late November.

The measure makes most of the taxes imposed on domestic and international companies equal. But it also means foreign enterprises' expenditures on local operations will rise by up to 10 percent.

Analysts said the effect on foreign investors is limited, and they must adapt to the new situations in China and regard it as a market rather than just a low-cost production center.

"I don't think this will exert any negative effect on the growth of foreign direct investment (FDI) in China, given China's robust economic growth and increasing domestic consumption, which will steadily help the market maintain its appeal to foreign businesses," said Wang Zhile, director of the research center on multinationals under the Ministry of Commerce.

Ding Yifan, economist of the State Council's Development Research Center, agreed with Wang and said that in addition to tax policies, many other factors - including consumption-market size, labor resources and economic growth - could determine a nation's attraction as an investment destination.

"The measure itself will help to create a fair tax environment for companies at home and abroad," he said.

Early on in its reform and opening to foreign enterprise, China launched super-preferential tax policies for international companies in a bid to propel its economic growth, and the internationals were exempt from some taxes. Over the past few years, the preferential policies have gradually been phased out.

According to the Ministry of Commerce, China's FDI grew from January to October by 16 percent from a year earlier, and October is the 15th consecutive month that the FDI registered positive growth since the start of the financial crisis.

The European Chamber of Commerce in China said that foreign companies are gradually being treated the same as their local counterparts, sending a strong signal that China's investment environment and policies are maturing, and that European companies have been well prepared for the change. "We have no reason to complain about the additional taxes," said a chamber staff who declined to be named.

"But we will be paying close attention to how China will continue opening to foreign businesses in the future," the person said.

The European Chamber of Commerce in China released a confidence survey in June, revealing that 70 percent of its member companies believe China will be among their top three investment destinations in five years.

The new tax measure comes after China's investment environment was widely criticized by foreign businesses in recent months. Their complaints partially led to China calling off super-preferential policies during the past few years.

In 2007, China unified the corporate income tax on domestic and foreign companies at 25 percent. Previously, foreign firms paid a 15 percent corporate income tax rate, 18 percentage points lower than their Chinese counterparts. The move was a turning point in the super-preferential policies that internationals enjoyed for about two decades.

In April, China launched a new FDI guideline in which the government encourages foreign companies to invest in the service and high-tech sectors instead of manufacturing, and to invest in China's central and western regions.

 

Key Words:  tax  tax policy tax adjustment