Foreign and domestic companies now under the same tax code

The Unified Corporate Income Tax (CIT) was passed in March 2007, ending nearly three decades of tax breaks for foreign investors and bringing both foreign and domestic companies under the same tax code. The CIT sets tax rates for most companies doing business in China at 25%. Previously, foreign investors were exempt from taxes for their first two years in China, then often paid as little as 10%. Chinese companies usually paid the 33% rate.

Even though some foreign companies will see their tax bills increase in China, a PricewaterhouseCoopers report says most would welcome a simplified tax system.

The new law marks a change in the way China markets its tax incentives, basing breaks on the desirability of the industry rather than geographic location. Sectors and projects specifically targeted for tax breaks include technology, environmental protection, energy conservation, production safety, venture capital, agriculture, forestry, animal husbandry, fishers and public infrastructure development.