China to end foreign tax breaks

Chinese politicians have backed a measure to end nearly three decades of blanket tax breaks for foreign investors in a step that will raise the tax burden for many companies.

The proposed law, which is expected to pass, would unify tax rates for foreign-financed companies with those of Chinese enterprises.

China has used tax breaks to help attract nearly €535.8bn in foreign investment, but Chinese companies that pay higher taxes have complained about unequal treatment.

Finance minister Jin Renqing said Chinese companies would be “at a competitive disadvantage” if the two-tier tax policy continued.

“It is necessary to unify domestic and foreign-funded enterprise income tax as soon as possible,” Jin said in a report distributed to members of the National People’s Congress.

Chinese companies currently pay 33% of their profits in tax. New foreign investors are exempt from paying tax for their first two years in China, and after that can take advantage of tax breaks that keep their rate as low as 10%.

The proposed law would eliminate such blanket exemptions and set rates for all companies at 25%, but would still allow tax breaks for high-technology projects and other investments favoured by the government.

Jin said the proposed new tax rate was still lower than that charged by China’s neighbouring economies, where he said rates averaged 26.7%.