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TAX
Foreign companies based in Shanghai's Pudong district currently enjoy a lower tax rate of just 15 per cent, compared with rates of 27 and 33 per cent elsewhere in the city. But this could be about to change, as the Shanghai authorities and the central government are considering a policy change that would remove the favourable tax rate for Pudong-based foreign entities. The Shanghai authorities offered the tax break to attract foreign investment in the city and to champion Pudong as the financial and commercial centre. According to reports in the South China Morning Post and other local press, China's central government now hopes to introduce a uniform corporate tax rate for both foreign and domestic companies by as early as 2008, and this would mean an end to preferential taxation in Shanghai. According to tax analysts, the new corporate tax rate could be 25 per cent for all. However, there are ways in which Shanghai could preserve Pudong's lower tax rates. It could use a 'grandfathering clause' to preserve the current rates for up to 10 years, or it has the option of making Pudong a special economic zone (SEZ) in the case that SEZs are allowed to keep their preferential tax status. The possible end of Pudong's low corporate tax rate could deter foreign companies from investing there, and could drive some existing business into areas outside Shanghai, where labour and land costs are lower. Is your business based in Pudong - and if so, how will the potential change in tax policy affect you? Would you consider moving your business outside Shanghai? Or would the higher tax rate deter you from basing your treasury in Shanghai? Talk about this issue in the forums. Copyright © ChinaForum 2006 |
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