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Businesses positive about corporate tax law

By Bi Xiaoning (China Daily)
Updated: 2008-04-11 10:21

As for the top concerns about taxation, respondents identified the concept of a "tax resident" system based on effective management of a firm (27 percent), compulsory transfer pricing documentation (21 percent) and controlled foreign company rules (18 percent) as the top three challenges to overcome.

When asked about the financial impact of the new law, 43 percent said they would face an increase in manpower costs to ensure compliance was met and 40 percent forecast higher expenditure in service fees paid to professionals for compliance support and advice.

"This is also encouraging news for the accounting sector. Demand for qualified accountants with international experience is at an all time high, and as China strengthens its lead role in the global economy this trend will continue," Rebecca Mak, vice-president of CPA Australia Beijing Committee and a tax partner with KPMG Huazhen in Beijing, said.

The new corporate tax law, for the first time since 1978, puts domestic and foreign firms on an equal footing in income taxation, reflecting the government's efforts to promote fair competition.

It was once assumed that inflows of foreign investment into the country would slow once the preferential tax rates for foreign firms were scrapped. But in the first two months this year, China attracted $18.1 billion in foreign direct investment (FDI), up about 75 percent year on year.

The appreciation of the renminbi against the US dollar is encouraging foreign investors to rush in. And the continuous increase in FDI reflects the country's standing as an attractive destination for foreign money.

Besides FDI, some foreign companies are also considering moving their Asian headquarters to China.

About a quarter of the respondents said that their companies would likely move their Asian headquarters to China (Beijing and Shanghai being the favored destinations), with 51 percent saying such moves could take place within the next three years.

The country's market potential was seen as the most important factor in China's attractiveness as a regional hub, with 66 percent listing it as their chief interest.

That was followed by operating costs (13 percent) and preferential tax policies (7 percent).

This suggests that the potential of the economy and a level playing field are more important to foreign investors than taxes.

Seventy-two percent of the respondents supported the idea of granting preferential tax policies to companies setting up regional headquarters in China.

"Hong Kong offers low tax rates and Singapore offers tax benefits to attract companies to establish regional headquarters in those jurisdictions. If the government wants to position the mainland as a competitive regional headquarters, a special tax regime will need to be put in place," Chan said.

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