Burden of Corporation Tax Heavies on Companies in China

Chinese Government is expected to drag up 16.5 percent corporation tax to 23~25 percent next year, which applies to foreign enterprises that invested in Chinese economic zone, etc.

Following this, it causes concern on returns on investment of Korean companies, invested in China.

Chinese representative group for tax policy like vice-minister of Finance, Louzi Wei expressed rise in corporation tax at Korea-China meeting for tax policy, attended by Korean officials in Ministry of Finance and Economy, stated MOFE concerned on 26th.

Vice-Minister Lou explained direction for reformation of tax in China and stated,“ we plan to raise corporation tax which is applied to foreign companies from 16.5 percent to 23~ 25 percent on the other hand 33 percent tax of domestic companies will drop to similar level”.

He explained background for this, “we should introduce single tax rate and withdraw discrimination of domestic and foreign companies, due to WTO registration,” and added “ we plan to confirm concrete tax rate for industry this year and implement it next year”.

It was first time as high ranking officials of Finance Ministry in China, who is in charge of tax policy, stated officially on reformation measures of corporation rate.

23~ 25 percent corporation rate, which China authorities is positively discussing comes under average corporation tax rate over foreign and domestic companies.

So far, foreign companies like Korean companies in China expected that China government will correct tax rate following WTO guidelines to withdraw discrimination of domestic and foreign countries, but, Chinese government has evaded concrete mention.

Currently, if foreign manufacturing company which has above 25 percent foreign shares invests in economic zone or national development district in China, it is applied 15 percent national tax and 1.5 percent local tax.

In case of financial agency it is getting same tax preference like manufacturing industry as it is treated to limit work for Yuan despite belonging to service industry.

Rae-Jeong Park ecopark@donga.com