NEW INCOME TAX LAW INCREASES DOMESTIC ENTERPRISES' COMPETITION

January 31, 2008 | BY

clpstaff

The new enterprise income tax law [EIT Law] that came to effect on January 1 has led companies in the PRC to recalculate their business strategies and…

The new enterprise income tax law [EIT Law] that came to effect on January 1 has led companies in the PRC to recalculate their business strategies and structures so as to operate with less cost burden under the new rules.

Enacted in March 16 last year, the new EIT Law consolidates both the Enterprise Income Tax Law for domestic corporations and the Foreign Enterprise Income Tax Law, leveling both domestic and foreign enterprises' tax rate to 25% from 33% previously. Those who used to enjoy less than the 25% tax rate will be granted a five-year period for them to gradually adjust to the new 25% rate.

Brendan Kelly, tax partner and head of Baker & McKenzie's Shanghai tax practice, said the goal of this law is to remove some of the incentives that historically were put in place to help drive foreign investment, where they are not needed anymore.

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