China has drafted executive regulations for a new corporate income tax law that will harmonize the domestic and foreign rates, and the final draft has been submitted to the State Council for approval, the China Securities Journal reported on Wednesday, citing an expert close to the issue.

 

The income tax rate for foreign companies in special bonded zones, which previously enjoyed a preferential rate of 15 percent, will rise in stages to 18 percent, 20 percent, 22 percent, 24 percent and finally 25 percent, the same as domestic companies, over five years, according to the draft.

 

The arrangement would apply to such bonded zones as Shenzhen Special Economic Zone, economic development zones set up in coastal cities like Hongqiao Economic and Technological Development Zone in Shanghai, and high- and new-tech development zones including Zhongguancun Science Park in Beijing.

 

The unidentified expert also said the 24-percent rate for foreign companies established in coastal regional development zones, such as the Yangtze River Delta and the Pearl River Delta, would rise directly to 25 percent in 2008.

 

However, foreign companies that have tax holidays, which provide for five tax-free years and another five years of up to 50 percent reduction, will retain those concessions for the full 10 years before facing the new higher rates.

 

The 15-percent rate will be retained until 2010 for foreign companies that invest in middle and western regions of China, an apparent effort by the government to redress regional economic imbalances.

 

The regulations will include new criteria for high- and new-technology firms, which can enjoy a lower 15-percent rate.

 

The qualifications could include the ownership of core proprietary property rights or government-supported products.

 

The regulations will also specify the proportion of sales that must be devoted to research and development and the ratio of research employees among total staff for qualified high- and new-tech firms.

 

The changes will make it more difficult for companies to gain the status of high- or new-tech investors, according to the expert.

 

"They would no longer enjoy the status forever and qualifications will be re-evaluated every one or two years. Those who fail to meet the standards would be disqualified," said the expert.

 

The regulations also state, in detail, tax policies that will favor infrastructure projects, environmental protection, and energy and water conservation.

 

The expert said the draft is still subject to revision by the State Council.

 

The new law, adopted this past March to allow fair competition between foreign and domestic companies, is set to take effect on January 1, 2008.

 

(Xinhua News Agency November 14, 2007)