New Tax on Foreign Firms Starts as of December 1

China will begin collecting city maintenance and construction taxes and education-supporting taxes from foreign companies, and individuals with commercial interests in the country, effective on December 1, 2010.

The move will create a level playing field, in terms of taxation, for all companies operating in the country, Zhang Hanya, chairman of the Investment Association of China said on Nov. 30.

"Since China's reform and opening-up, China has provided preferential policies in order to attract foreign investment to boost growth," he said.

"Foreign-funded companies actually have enjoyed special treatment in terms of land use and taxation."

But the move has been criticized by some foreign businesses.

Zhang said this might be in part due to the mistaken belief that the taxes were created especially for foreign companies.

The government is phasing in tax increases over five years, with foreign companies paying 18-percent in 2008, 20 percent in 2009, 22 percent in 2010, 24 percent in 2011 and 25 percent from 2012, although some discrepancies may exist due to local government preferences.

"Considering the fact that some foreign firms in China make fast profits, the new taxation will not add much to their cost burden," Zhang said.

Zhang also said the introduction of the new taxes did not mean the environment to invest in China was worsening, adding taxes were not the only thing companies looked at when investing in China.

Liu Kegu, former China Development Bank vice president, said recently that China remained an attractive foreign investment destination due to its high economic growth, political stability at home, huge consumer market, and abundant labor resources.

Figures from the country's Ministry of Commerce show foreign direct investment (FDI) into China increased 7.86 percent year on year in October to $7.7 billion, rising for the 15th consecutive month.