Corporate tax reforms implemented by the Chinese Government have provoked a mixed reaction from UK companies operating in the country.
The reforms mean that in most cases, a 25% corporate tax rate now applies to international and domestic companies.
Many overseas businesses in the country had previously been granted tax holidays and other incentives, meaning the previous rate of 33% was reduced to just 15%.
Stephen Weatherseed, head of the Grant Thornton UK China group, said the changes were designed to ‘level the playing field’ between international and domestic businesses.
“In many cases, overseas companies have been paying no corporate tax at all for several years,” he said.
However, the incentives previously put in place to encourage foreign investment are now being pushed towards high-tech and eco-friendly businesses, which some UK businesses welcomed.
The Chinese government said the measures will ease inflationary pressures and make growth less resource-intensive.
”China no longer needs to encourage overseas investment to such an extent and its focus is now on measured growth, domestic companies, and on encouraging high-tech and energy efficient industries,” said Weatherseed.
Although the new tax regime is expected to make operating in the country more expensive for UK businesses, Nick Farr, tax partner in Grant Thornton’s UK China group, said he did not expect UK companies to stop investing in the region.
“Companies are finding that factory-gate prices of their Chinese operations are going up, but economic evidence is that continuing efficiency improvements in China are counter-balancing wage inflationary pressures.
“China is and will remain a huge market, and UK companies are continuing to invest heavily in the region,” he said.
© Crimson Business Ltd. 2008