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China Begins Phasing In New Corporate Income Tax

China's State Council, or cabinet, began phasing in the new unified corporate income tax which took effect yesterday with new rules covering the transition to a single tax rate of 25 pct for foreign and domestic firms by 2012.

In a statement published on the website of the Ministry of Finance, the five-year phase-in period involves a tax rate of 18 pct in 2008, 20 pct in 2009, 22 pct in 2010, 24 pct in 2011 and 25 pct in 2012, for companies previously assessed the 15 pct rate.

The transitional measures apply to companies registered with industry and commerce regulators before March 16, 2007.

Companies enjoying tax exemptions or other concessionary rates will continue to be assessed at those levels until their privileges expire. These include preferential schemes covering companies in China's western regions.

Incentives for qualified technology companies registered in special economic zones, including Shenzhen, Zhuhai, Shantou, Xiamen and Hainan, as well as in the Shanghai Pudong New Area, remain in force, the ministry said.

Companies enjoying technology-related concessions are exempt from corporate income tax for the first two years for earnings booked within the recognized zones, and will be assessed a rate of 12.5 pct from the third to the fifth years. Gains from outside the recognized zones will be assessed separately.