Doing Business in China For Dummies®

Paying the Government without Taxing Your Patience

In dealing with China, you have to deal with both corporate and individual taxes. As we discuss in the upcoming sections, individual taxes for foreigners and Chinese nationals vary.

Corporate taxes

In March 2007, the government enacted a new corporate income tax (CIT) law, which takes effect January 1, 2008. Unfortunately, because the implementing regulations haven’t yet come out, the new tax regime isn’t entirely clear.

Here are some of the changes:

✓	The main thrust of the new law is equalizing income tax treatment of Chinese companies and FIEs at a national tax rate of 25 percent (the current framework often favors FIEs over Chinese companies). Some companies may qualify for lower rates of 20 percent (for certain small companies) or 15 percent (for certain technology companies).
✓	The law also alters the tax-incentive structure. Most likely, incentives will be more narrowly tailored to encourage investment in certain industries, such as environmental protection, production safety, and clean energy.
✓	The new law provides for more stringent enforcement of the CIT, particularly focusing on transfer pricing — the prices for various goods and services that affiliated companies pay one another. (For info on representative office taxation, see Chapter 7.)

The rest of this section explains China’s currently effective (as of writing) business ...