Last year China agreed to join the effort to combat tax avoidance and evasion.  With this agreement, China joins the G20 countries in their cooperation on tax avoidance.  China has now announced it will step up its efforts even further.  It seems tax reform is on the agenda.

Before tax reform can take effect, it is expected that renewed efforts will be made to investigate tax fraud.  China, is discovering the importance of greater tax transparency.  For many years China has grappled with the difficulty of ensuring compliance and enforcing disclosure obligations.  The current tax administration has proven successes, recovering taxes worth USD $5.7 billion, 30 times more than in 2008.  As more countries enter into information conventions local governments will have better information and can carry out more thorough investigations.

Tax rates in China range from 3% to 45% for individuals, 25% for domestic and foreign companies although companies in the high tech industry can benefit from a lower 15% corporate tax rate; and VAT is 17%.  Capital gains recognized by an individual are taxed at the rate of 20%, while capital gains recognized by a Chinese company are taxed at the regular income tax rate.

China continues to use economic and technological development zones to encourage manufacturing and other businesses.  Tax incentives provided to companies operating in one of these 50 zones are attractive and have been successful in attracting businesses.  The local economies have benefitted tremendously and are fueling continued growth.

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