China’s tax breaks for foreign companies reported to end

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China is expected to end the special tax status it has granted to foreign companies operating in the Asian nation until now. The Chinese legislature, which meets beginning Monday, is expected to enact a new law that will raise the amount of taxes foreign companies pay there while lowering taxes for many Chinese companies. The changes are said to be part of an effort to bring Chinas laws up to date and meet international standards that expect all companies to be treated equally.Up to the present, foreign companies received a complete exemption from income taxes in China for two years and then received a 50 percent discount on taxes for the next three years. After that, other tax provisions could keep taxes on foreign companies as low as 10 percent. Chinese companies, on the other hand, have been required to pay 33 percent on their profits.A draft of the new rules will tax all companies, Chinese and foreign alike, at 25 percent, with a lower rate for companies engaged in technology development. The new rules are aimed at creating an atmosphere of fair competition by making business conditions uniform nationwide. Some question how effective new rules will be, considering that tax collection is handled by local authorities who often institute tax incentives independently in order to attract more investment to their local regions.Analysts say that while the financial impact on foreign companies once the new rules are enacted are unknown, it is likely that most foreign companies operating in China will not alter their business plans due to the profitability of the nations low labor costs and huge pool of potential customers. In addition, tax breaks granted to companies already operating in China will continue for as much as five years under the new rules.