Managing foreign investment by law in China : income tax law reform and its implications

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Managing foreign investment by law in China : income tax law reform and its implications

 

Author: Tuen, Kong Simon
Title: Managing foreign investment by law in China : income tax law reform and its implications
Degree: M.Sc.
Year: 1995
Subject: Corporations, Foreign -- Taxation -- China
Income tax -- Law and legislation -- China
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Pages: v, 111 leaves ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b1202730
URI: http://theses.lib.polyu.edu.hk/handle/200/238
Abstract: In an effort to boost foreign investment and trade channels, and to meet new economic conditions after a decade of open policy, the "Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises" (the "Unified Income Tax Law" and also the "new tax law") and its Detailed Rules for Implementation were promulgated in mid-1991. Both the Unified Income Tax Law and its Detailed Rules became effective as of July 1, 1991. The new code of law replaces the Joint Venture Income Tax Law and the Foreign Enterprises Income Tax Law, which govern the operations with foreign investment since the early 1980s. As the most significant tax legislation since the implementation of the "Open Door" policy in 1978, the Unified Income Tax Law stipulates that all foreign investments be taxed under one system, eliminating prior distinctions between equity joint ventures (EJVs), cooperative joint ventures (CJVs) and wholly foreign-owned enterprises (WFOEs). The new tax law represents a big step forward in China's foreign taxation and is having significant implications to foreign investment. Foreign investors now consider their investment strategy more on the advantages and disadvantages of the specific forms of investment and less on aspects of taxation. On the part of Chinese government, the new tax law represents a reaffirmed effort to improve business environment and to guide foreign investors to the area which China desires with the purpose of achieving a balanced economic development. In developing a tax system for foreign business, China, like any other country in its position, is attempting to balance its right to participate in the gains accruing to foreign operations from their business in China with the need to encourage investors to provide capital and technology that the country so urgently needs for its modernization program. China has by no means achieved the perfect balance in its tax system. However, foreign enterprises in China as a whole should welcome the new tax law as a positive step, since it eliminated the puzzle of facing a maze of different tax regulations and often difficult to determine how or on what basis they would be taxed. The Unified Income Tax Law now provides much clearer guidelines on the tax liability of foreign investors in China. By standardizing the application of the tax law for all foreign taxpayers and making tax burden more equitable, the Unified Income Tax Law represents a major achievement in China's effort to improve its tax system. This paper concludes that despite its inadequacy, the new tax law is viewed as an improvement over the old laws, which often result in inconsistent and unclear tax application, and as open and flexible that generally conform with international tax practice. The Unified Income Tax. Law is a big step forward in the process of establishing a more equitable, rational and comprehensive tax structure and is in the right direction to improving investment environment in China.

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